nep-ene New Economics Papers
on Energy Economics
Issue of 2017‒10‒15
twenty-one papers chosen by
Roger Fouquet
London School of Economics

  1. Interactions in Swiss Households' Energy Demand: A Holistic Approach By Ivan Tilov; Benjamin Volland; Mehdi Farsi
  2. Knowledge Accumulation from Public Renewable Energy R&D in the European Union: Converging or Diverging Trends? By Grafström, Jonas; Söderholm, Patrik; Gawel, Erik; Lehmann, Paul; Strunz, Sebastian
  3. Explaining Electricity Forward Premiums - Evidence for the Weather Uncertainty Effect By Obermüller, Frank
  4. Optimal Regulation with Exemptions By Louis Kaplow
  5. Mobile Phone Innovation and Environmental Sustainability in Sub-Saharan Africa By Asongu, Simplice; Nwachukwu, Jacinta
  6. Competition Policy Evaluation through Damage Estimation in Fuel Retail Cartel By Cuiabano, Simone
  7. Male-biased Demand Shocks and Women’s Labor Force Participation: Evidence from Large Oil Field Discoveries By Maurer, Stephan; Potlogea, Andrei
  8. Why have the recent oil price declines not stimulated global economic growth? By Thomas Theobald; Peter Hohlfeld
  9. Oil Price Shocks and Economic Growth in the Us By Michael Alexeev; Yao-Yu Chih
  10. Self-Sabotage in the Procurement of Distributed Energy Resources By Brown, David P.; Sappington, David E. M.
  11. The impact of oil-market shocks on stock returns in major oil-exporting countries: A Markov-switching approach By Alfred Haug; Syed Abul Basher; Perry Sadorsky
  12. The (Uneven) Spatial Distribution of the Bakken Oil Boom By Johanna Richter; Alliana Salanguit; Alexander James
  13. Bounds Testing Approach to Analyzing the Environment Kuznets Curve Hypothesis: The Role of Biomass Energy Consumption in the United States with Structural Breaks By Shahbaz, Muhammad; Solarin, Sakiru Adebola; Hammoudeh, Shawkat; Shahzad, Syed Jawad Hussain
  14. The signaling effect of gasoline taxes and its distributional implications By Silvia Tiezzi; Stefano F. Verde
  15. The Distribution of Environmental Damages By Solomon Hsiang; Paulina Oliva; Reed Walker
  16. Carbon emissions and economic growth in South Africa: A quantile regression approach By Mapapu, Babalwa; Phiri, Andrew
  17. Delegating climate policy to a supranational authority: a theoretical assessment By Pichler, Paul; Sorger, Gerhard
  18. The Carbon Bubble: Climate Policy in a Fire-sale Model of Deleveraging By Alessandro Spiganti; David Comerford
  19. Climate Policy Commitment Devices By Dengler, Sebastian; Gerlagh, Reyer; Trautmann, Stefan; van de Kuilen, Gijs
  20. Will Assets be Stranded or Bailed Out? Expectations of Investors in the Face of Climate Policy By Suphi Sen; Marie-Theres Von Schickfus
  21. Intergenerational equity under catastrophic climate change By Aurélie Méjean; Antonin Pottier; Stéphane Zuber; Marc Fleurbaey

  1. By: Ivan Tilov; Benjamin Volland; Mehdi Farsi
    Abstract: This article explores the interactions between direct and embodied energy requirements of households in Switzerland in order to assess the net impacts of standard energy policies focusing exclusively on direct energy use. For this purpose, we estimate direct and embodied energy demand of Swiss households by combining consumption data of a national expenditure survey with corresponding data on energy intensity mainly from life-cycle analysis. We find strong evidence of complementarity between direct and grey energy by first estimating model parameters in a system of equations setup. In particular, the analysis of various socio-economic and psychological determinants allows us to identify a non-linear relationship between energy demand and income, which suggests that energy possesses certain "luxury features" that go beyond staple resources. An additional indication that households in Switzerland use direct and indirect energy in a complementary manner is provided by the coefficient of cross-equation correlation of residuals in our system. Finally, we analyze the causal relationship between both energy domains by the method of instrumental variables and find indicative evidence of a positive causal effect of embodied on direct energy demand, but not the other way round. From a policy perspective, our findings are important as they suggest that the wide-spread policies targeting direct energy consumption are unlikely to cause a substantial shift in household energy demand from the direct to the indirect domain.
    Keywords: Households Energy Requirements; Direct Energy; Embodied Energy; Interactions; Trade-offs; Complementarity.
    JEL: Q40 Q41 D12
    Date: 2017–10
  2. By: Grafström, Jonas (The Ratio Institute); Söderholm, Patrik (Luleå University of Technology); Gawel, Erik; Lehmann, Paul; Strunz, Sebastian
    Abstract: Bottom-up processes of policy convergence are increasingly discussed as a substitute for the absence of supranational energy policy coordination and harmonization in the EU. The overall objective of this paper is to analyse the development of government support to renewable energy R&D across EU countries over time: does the empirical evidence suggest bottom-up convergence? In order to answer this question, we first construct country-specific R&D-based knowledge stocks, and then investigate whether the developments of these stocks tend to converge or diverge across EU countries. A data set covering 12 EU Member States over the time period 1990-2012 is employed to test for the presence of conditional -convergence using a bias-corrected dynamic panel data estimator. The empirical results are overall robust and suggest divergence in terms of public R&D-based knowledge build-up in renewable energy technology. This finding is consistent with free-riding behavior on the part of some Member States, and the presence of industrial policy motives in other States in combination with agglomeration effects in the renewable energy sector. Energy import dependence and electricity regulation are found to influence the growth of the R&D-based knowledge stock, and the deregulation of the EU electricity markets has tended to contribute to a lower speed of divergence.
    Keywords: renewable energy sources; public R&D support; convergence; European Union
    JEL: O44 Q40 Q55
    Date: 2017–09–25
  3. By: Obermüller, Frank (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: With the increasing share of volatile renewable energies, weather prediction becomes more important to electricity markets. The weather-driven uncertainty of renewable forecast errors could have price increasing impacts. This research sets up an analytic model to show that the day-ahead optimal bidding under uncertain renewable production is below the expected production and thus price increasing. In a second step, the price increasing effect on forward premiums by specific weather types and their renewable production uncertainty is proved via empirical methods. Weather types are identified in which renewable production is harder to predict. The findings connect weather dependent renewable forecast uncertainty to forward premiums and support the consideration of weather types in price forecasting models.
    Keywords: Forward Premium; Weather Type; Uncertainty; Volatile Renewable Production
    JEL: D21 D22 D41 D81 Q41 Q42 Q47
    Date: 2017–09–28
  4. By: Louis Kaplow
    Abstract: Despite decades of research on mechanism design and on many practical aspects of cost-benefit analysis, one of the most basic and ubiquitous features of regulation as actually implemented throughout the world has received little theoretical attention: exemptions for small firms. These firms may generate a disproportionate share of harm due to their being exempt and because exemption induces additional harmful activity to be channeled their way. This article analyzes optimal regulation with exemptions where firms have different productivities that are unobservable to the regulator, regulated and unregulated output each cause harm although at different levels, and the regulatory regime affects entry as well as the output choices of regulated and unregulated firms. In many settings, optimal schemes involve subtle effects and have counterintuitive features: for example, higher regulatory costs need not favor higher exemptions, and the incentives of firms to drop output to become exempt can be too weak as well as too strong. A final section examines the optimal use of output taxation alongside regulation, which illustrates the contrast with the mechanism design approach that analyzes the optimal use of instruments of a type that are not in widespread use.
    JEL: D61 D62 H23 J88 K20 K23 K32 K42 L51 Q58
    Date: 2017–09
  5. By: Asongu, Simplice; Nwachukwu, Jacinta
    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
  6. By: Cuiabano, Simone
    Abstract: I estimate the fuel retailer cartel damages in the south of Brazil using reduced and structural forms for supply and demand. Brazilian Competition Authority (CADE) documents help to characterize the ethanol and gasoline retailers involved in the collusion. The objective is to evaluate competition policy by comparing the amount of estimated damages with the amount of applied fines. This paper also adds an important result to gasoline substitution, as data shows that ethanol is perceived as a perfect substitute and it is price inelastic. Results show an overcharge of 4.6% to 6.6% in the gasoline market and up to 12% in the ethanol market during collusion. Fines should consider the deterrence effect and, giving the low probability of detection, CADE’s applied fines seemed to be in line with this objective.
    Date: 2017–09
  7. By: Maurer, Stephan; Potlogea, Andrei
    Abstract: We study whether male-biased demand shocks affect women's labor force participation (LFP), using major oil field discoveries in the US South between 1900 and 1940. We find that oil wealth has a zero net effect on female LFP due to two opposing channels. Increased male wages lead to a higher marriage rate of young women, which could have depressed female LFP. But at the same time, oil wealth also increases demand for female labor in services, which counterbalances the marriage effect.
    JEL: R11 N50 J12 J16
    Date: 2017
  8. By: Thomas Theobald; Peter Hohlfeld
    Abstract: We analyze the global relationship between oil prices, commodity-specific financial marketshocks and economic activity by means of Structural Vector Autoregressive (SVAR) models for the period 1996 - 2015. For the financial market variables in our model, we use a breakdown of G-20 countries into net commodity exporting and importing countries to compute the real exchange rate between the country groups as well as the corresponding interest rate spread. Regarding the discussion about the missing expansionary effects of the recent oil price declines at the global level, our empirical framework tests the following transmission: A downgrading of financial conditions for commodity exporting countries can lead to a more serious decline of their domestic demand as should be expected from the pure income effect of lower export revenues due to lower oil prices. Therefore, missing expansionary effects of the recent oil price declines should not only be traced back to the absence of expansionary monetary policy effects at the zero lower bound in many commodity importing countries, but also to a high dependency of commodity exporting countries on international financial markets.
    Keywords: oil price, interest rate spread, real exchange rate, economic growth, sign restriction
    JEL: C30 E37 Q43
    Date: 2017
  9. By: Michael Alexeev (Indiana University); Yao-Yu Chih (Texas State University)
    Abstract: We apply both conventional and spatial techniques to panel data for US states to examine the effects of plausibly exogenous oil price shocks on economic growth. Contrary to the oil curse claims, we find that oil price shocks have numerically moderate but highly statistically significant positive direct effects on growth while the indirect effects are insignificant. We also find that positive impact of oil occurs only in states with a high value of the economic freedom index. In a technical contribution to the spatial econometrics literature we propose a procedure for estimating marginal effects of oil price shocks in a model with interaction terms. In addition, we show that the cumulative direct oil price effects on economic growth are persistent over time.
    Keywords: oil curse, regional economic growth, spatial lags
    Date: 2017–10
  10. By: Brown, David P. (University of Alberta, Department of Economics); Sappington, David E. M. (University of Florida, Department of Economics)
    Abstract: We analyze the regulatory procurement of electricity infrastructure that can take the form of either a traditional core investment or non-traditional distributed energy resources (DERs). We identify conditions under which a regulated utility will engage in self-sabotage (i.e., intentionally increase its own costs) in order to elicit more favorable procurement terms. We also demonstrate how the implementation of standard policies (e.g., cost reimbursement or a simple cost-sharing plan) or the adoption of a traditional core project rather than a potentially less-costly DER project can reduce procurement costs by deterring self-sabotage.
    Keywords: self-sabotage; distributed energy resources; regulation; procurement
    JEL: L51 L94 Q28 Q40
    Date: 2017–10–03
  11. By: Alfred Haug (Department of Economics, University of Otago, New Zealand); Syed Abul Basher (Department of Economics, East west University, Bangladesh); Perry Sadorsky (School of Business, York University, Canada)
    Abstract: The impact that oil shocks have on stock prices in oil exporting countries has implications for both domestic and international investors. We derive the shocks driving oil prices from a fully-identified structural model of the oil market. We study their nonlinear relationship with stock market returns in major oil-exporting countries in a multi-factor Markov-switching framework. Flow oil-demand shocks have a statistically significant impact on stock returns in Canada, Norway, Russia, Kuwait, Saudi Arabia, and the UAE. Idiosyncratic oil-market shocks affect stock returns in Norway, Russia, Kuwait, Saudi Arabia and UAE. Speculative oil shocks impact stock returns in Canada, Russia, Kuwait and the UAE. Flow oil-supply shocks matter for the UK, Kuwait, and UAE. Mexico is the only country where stock returns are unaffected by oil shocks. These results shed important light on investor sentiment toward the relationship between oil shocks and stock markets in oil exporting countries.
    Keywords: Markov-switching; oil-exporting countries; oil-market shocks; stock returns
    JEL: E44 G15 Q43
    Date: 2017–10
  12. By: Johanna Richter (Department of Economics and Public Policy, University of Alaska Anchorage); Alliana Salanguit (Department of Economics and Public Policy, University of Alaska Anchorage); Alexander James (Department of Economics and Public Policy, University of Alaska Anchorage)
    Abstract: Resulting from a booming shale-energy sector, from 2007 to 2014, real income per capita in North Dakota increased 40%. Does this reflect the experience of a few oil-rich counties, or were the gains more evenly distributed across the region? We find that the shale boom generated significant economic gains for counties above and near the Bakken, but not for those further away. We also document significant state-border effects which are not easily explained. Conditional on distance to the Bakken region, the shale boom generated limited outward migration from South Dakota and, perhaps as a result, the economic gains that accrued there were muted.
    Keywords: Resource boom, Migration, Regional development
    JEL: Q32 Q33
    Date: 2017–09
  13. By: Shahbaz, Muhammad; Solarin, Sakiru Adebola; Hammoudeh, Shawkat; Shahzad, Syed Jawad Hussain
    Abstract: This paper re-examines the specification of the environmental Kuznets curve (EKC) for the US economy by accounting for the presence of a major renewable energy source and trade openness over the period 1960-2016. Biomass energy consumption and trade openness as well as oil prices are considered as additional determinants of economic growth, and consequentially of CO2 emissions. The bounds testing approach to cointegration is applied to examine the long-run relationship between the variables in the presence of structural breaks. The causal relationship between the variables is investigated by applying the VECM Granger causality test by accommodating structural breaks. The results confirm the presence of cointegration between the variables. Moreover, the relationship between economic growth and CO2 emissions is not only inverted-U shaped but also N-shaped in the presence of structural breaks and biomass. Biomass energy consumption lowers CO2 emissions. Exports, imports and trade openness are also environment- friendly. The causality analysis indicates a feedback effect between biomass energy consumption and CO2 emissions. Economic growth still Granger causes CO2 emissions in this new setup.
    Keywords: EKC; Biomass energy; Oil prices; Trade openness; Structural breaks
    JEL: A1
    Date: 2017–10–03
  14. By: Silvia Tiezzi; Stefano F. Verde
    Abstract: This paper proposes and tests a better defined interpretation of the different responses of gasoline demand to tax changes and to market-related price changes. Namely, the signaling effect of gasoline taxes is one that impacts on long-run consumer decisions in addition to the incentives provided by tax-inclusive gasoline prices. Our hypothesis is tested using a complete demand system augmented with information on gasoline taxes and fitted to household-level data from the 2006 to 2013 rounds of the US Consumer Expenditure survey. Information on gasoline taxes is found to be a significant determinant of household demand additional to tax-inclusive gasoline prices. The equity implications are examined by contrasting the incidence across income distribution of a simulated $0.22/gallon tax increase to that of a market-related price increase equal in size. The tax increase is clearly regressive, slightly more than the market-related price increase. However, regressivity is by no means a reason to give up gasoline taxes as an instrument for reducing gasoline consumption externalities. Their high effectiveness in reducing gasoline demand implies that small tax increases can substantially improve the environment while minimizing the related distributional effects. Also, gasoline taxes generate revenue that can be used to offset their regressivity.
    Keywords: gasoline taxation, signalling effect, demand systems, conditional cost functions, distributional incidence
    JEL: D12 H2 H3 Q4
    Date: 2017–02
  15. By: Solomon Hsiang; Paulina Oliva; Reed Walker
    Abstract: Most regulations designed to reduce environmental externalities impose costs on individuals and firms. An active body of research has explored how these costs are disproportionately born by different sectors of the economy and/or across different groups of individuals. However, much less is known about the distributional characteristics of the environmental benefits created by these policies, or conversely, the differences in environmental damages associated with existing environmental externalities. We review this burgeoning literature and develop a simple and general framework for focusing future empirical investigations. We apply our framework to findings related to the economic impact of air pollution, deforestation, and climate, highlighting important areas for future research. A recurring challenge to understanding the distributional effects of environmental damages is distinguishing between cases where (i) populations are exposed to different levels or changes in an environmental good, and (ii) where an incremental change in the environment may have very different implications for some populations. In the latter case, it is often difficult to empirically identify the underlying sources of heterogeneity in marginal damages, as damages may stem from either non-linear and/or heterogeneous damage functions. Nonetheless, understanding the determinants of heterogeneity in environmental benefits and damages is crucial for welfare analysis and policy design.
    JEL: H23 I14 Q5 Q56
    Date: 2017–09
  16. By: Mapapu, Babalwa; Phiri, Andrew
    Abstract: Of recent carbon emissions have become an increasing concern for economies worldwide. In this study we investigate the relationship between carbon emissions and economic growth for the South African economy, one of the largest emitters of carbon dioxide worldwide. We employ the quantile regression methodology which is applied to annual data covering a period of 1970 to 2014. Our empirical results indicate that very low levels of carbon emissions are most beneficial towards economic growth. Our results thus encourage policymakers to continue to embark on energy efficiency programmes which specifically target lower levels of carbon pollution.
    Keywords: Carbon Emissions; Economic growth; Environmental Kuznets curve; South Africa; Quantile regressions
    JEL: C13 C32 C51 Q43 Q56
    Date: 2017–10–06
  17. By: Pichler, Paul; Sorger, Gerhard
    Abstract: We study the delegation of climate policy to a supranational environmental authority. We demonstrate that the authority faces a dynamic inconsistency problem that leads to welfare losses. The losses can be kept small if the mandate of the authority penalizes the local cost of emissions heavily, but puts little or no weight on the cost of climate change. The design of the authority's mandate creates another dynamic inconsistency because the countries face a recurrent incentive to modify it.
    JEL: F53 H87 O33 Q43 Q54
    Date: 2017
  18. By: Alessandro Spiganti (University of Edinburgh); David Comerford (University of Strathclyde)
    Abstract: Committed and credible implementation of climate change policy, consistent with the usual 2C limit, is thought to require large fossil fuel asset write-offs. This issue, termed the Carbon Bubble, is usually presented as having implications for investors but, for the first time, this paper discusses its implications for macroeconomic policy and for climate policy itself. We embed the Carbon Bubble in a macroeconomic model exhibiting a financial accelerator: if investors are leveraged, the Carbon Bubble may precipitate a fire-sale as investors rush for the exits, and generate a large and persistent fall in output and investment. We investigate policy responses which can accompany the writing-off of fossil fuel assets, like debt transfers, investment subsidies, government guarantees, or even deception about the true scale of the required write-off of fossil fuel assets. We find a role for policy in mitigating the Carbon Bubble.
    Date: 2017
  19. By: Dengler, Sebastian (Tilburg University, Center For Economic Research); Gerlagh, Reyer (Tilburg University, Center For Economic Research); Trautmann, Stefan (Tilburg University, Center For Economic Research); van de Kuilen, Gijs (Tilburg University, Center For Economic Research)
    Abstract: We develop a dynamic resource extraction game that mimics the global multi-generation planning problem for climate change and fossil fuel extraction. We implement the game under different conditions in the laboratory. Compared to a ‘libertarian’ baseline condition, we find that policy interventions that provide a costly commitment device or reduce climate threshold uncertainty reduce resource extraction. We also study two conditions to assess the underlying social preferences and the viability of ecological dictatorship. Our results suggest that climate-change policies that focus on investments that lock the economy into carbon-free energy sources provide an important commitment device in the intertemporal cooperation problem.
    Keywords: climate policy instruments; intertemporal cooperation; climate game; experiments
    JEL: C91 D62 D99 Q38 Q54
    Date: 2017
  20. By: Suphi Sen; Marie-Theres Von Schickfus
    Abstract: The goal to keep global warming below 2°C implies that many energy-sector assets are at risk of becoming stranded. This paper investigates whether and how investors price in stranded asset risk due to climate policy. We exploit the gradual development of a German climate policy proposal aimed at reducing electricity production from coal and analyze its effect on the valuation of energy utilities. We find that investors do care about stranded asset risk due to climate policy, but that they also expect a financial compensation policy for their stranded assets. We show that these results are not driven by contemporaneous confounding events.
    Keywords: Stranded assets, climate policy
    JEL: Q38 G14
    Date: 2017
  21. By: Aurélie Méjean (CIRED - CNRS); Antonin Pottier (Centre d'Economie de la Sorbonne); Stéphane Zuber (Paris School of Economics - Centre d'Economie de la Sorbonne); Marc Fleurbaey (Woodrow Wilson School of Public and International Affairs, Princeton University)
    Abstract: Climate change raises the issue of intergenerational equity. As climate change threatens irreversible and dangerous impacts, possibly leading to extinction, the most relevant trade-off may not be between present and future consumption, but between present consumption and the mere existence of future generations. To investigate this trade-off, we build an integrated assessment model that explicity accounts for the risk of extinction of future generations. We compare different climate policies, which change the probability of catastrophic outcomes yielding an early extinction, within the class of variable population utilitarian social welfare functions. We show that the risk of extinction is the main driver of the preferred policy over climate damages. We analyze the role of inequality aversion and population ethics. Usually a preference for large populations and a low inequality aversion favour the most ambitious climate policy, although there are cases where the effect of inequality aversion is reversed
    Keywords: Climate change; catastrophic risk; equity; population; climate-economy
    JEL: D63 Q01 Q54 Q56 Q5
    Date: 2017–09

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