nep-ene New Economics Papers
on Energy Economics
Issue of 2018‒04‒02
forty-four papers chosen by
Roger Fouquet
London School of Economics

  1. High Taxes on Cloudy Days: Dynamic State-Induced Price Components in Power Markets By Göke, Leonard; Madlener, Reinhard
  2. Improving the Market for Flexibility in the Electricity Sector By de Jong, Jacques; Hassel, Arndt; Egenhofer, Christian; Jansen, Jaap; Xu, Zheng
  3. Benefits of real-time pricing and rooftop solar PV generation: Explorations using Swedish micro-data By Krishnamurthy, Chandra K.B.; Vesterberg, Mattias; Böök, Herman; Lindfors, Anders V.; Svento, Rauli
  4. Carbon Taxes from an Economic Perspective By Claudia Kettner-Marx; Daniela Kletzan-Slamanig
  5. The Impact of Economic Growth on CO2 Emissions in Azerbaijan By Jeyhun I. Mikayilov; Marzio Galeotti; Fakhri J. Hasanov
  6. Does the EU renewable energy sector still need a guarantees of origin market? By Jansen, Jaap
  7. To Build or Not to Build? Capital Stocks and Climate Policy By Elizabeth Baldwin; Yongyang Cai; Karlygash Kuralbayeva
  8. Learning from Nationally Determined Contributions By Akimoto, Keigo; Aldy, Joseph; Aleluia Reis, Lara; Carraro, Carlo; Pizer, Billy; Tavoni, Massimo
  9. The Heterogeneous Impact of Coal Prices on the Location of Dirty and Clean Steel Plants By Francois Cohen; Giulia Valacchi
  11. CESEC 2.0: Opening the door to a new level of regional cooperation By Egenhofer, Christian; Stroia, Cristian
  12. Carbon Taxes at EU Level. Introduction Issues and Barriers By Stefan E. Weishaar
  13. Is security of energy supply possible without deeper cross-border market integration? Lessons from the cold spell in South-Eastern Europe By Egenhofer, Christian; Stroia, Cristian
  14. Systems Innovation, Inertia and Pliability: A mathematical exploration with implications for climate change abatement By Grubb, M.; Mercure, J.; Salas, P.; Lange, R.
  15. Decoupling of C02 Emissions and GDP: A Time-Varying Cointegration Approach By Jeyhun I. Mikayilov; Fakhri J. Hasanov; Marzio Galeotti
  16. Accounting for Energy Intensity Across Countries: Composition, Prices and Technology By Xican Xi; Adrian Peralta-Alva; Marina Mendes Tavares
  17. Rationales for technology-specific RES support: the impaired Brazilian solar expansion By Gustavo Andreão; Michelle Hallacka; Miguel Vazqueza;
  18. Investment versus Output Subsidies: Implications of Alternative Incentives for Wind Energy By Joseph E. Aldy; Todd D. Gerarden; Richard L. Sweeney
  19. Information Leverage: The Adoption of Clean Cooking Fuel in Bhutan By Ngawang Dendup; Toshi H. Arimura
  20. Did U.S. Consumers Respond to the 2014–2015 Oil Price Shock? Evidence from the Consumer Expenditure Survey By Patrick Alexander; Louis Poirier
  21. Household Fuel Use in Rural China By Christophe Muller; Huijie Yan
  22. Calculations of gaseous and particulate emissions from German agriculture 1990-2016: Report on methods and data (RMD) Submission 2018 By Haenel, Hans-Dieter; Rösemann, Claus; Dämmgen, Ulrich; Döring, Ulrike; Wulf, Sebastian; Eurich-Menden, Brigitte; Freibauer, Annette; Döhler, Helmut; Schreiner, Carsten; Osterburg, Bernhard
  23. Transforming Energy-Intensive Industries: Reflections on innovation, investment and finance challenges By Elkerbout, Milan
  24. Canada’s Carbon Price Floor By Ian W.H. Parry; Victor Mylonas
  25. The Transition to Renewable Energy By Charles F. Mason; Rémi Morin Chassé
  26. The Informational Effects of Tightening Oil and Gas Disclosure Rules By Badia, Marc; Duro, Miguel; Jorgensen, Bjorn N.; Ormazabal, Gaizka
  27. Oil Rents Shocks and Inequality in Iran By Mohammad Reza Farzanegan; Tim Krieger
  28. Does energy efficiency affect ship values in the second-hand market? By Roar Adland; Pierre Cariou; François-Charles Wolff
  29. Demand response as a common pool resource game: Nudges versus prices By Penelope Buckley; Daniel Llerena
  30. An Equilibrium Model of the Market for Bitcoin Mining By Julien Prat; Benjamin Walter
  31. Environmental policy on the fixed-fee licensing of eco-technology under foreign penetration By Kim, Seung-Leul; Lee, Sang-Ho
  32. Improving Cooperation among EU Member States in Handling Electricity Crises: Lessons for the Regulation on risk-preparedness By Hassel, Arndt; Stroia, Cristian; Egenhofer, Christian; Jansen, Jaap; Behrens, Arno
  33. Nord Stream 2 – Friend or enemy of energy security in Europe? By Barnes, Alex
  34. Common Factors of Commodity Prices By Delle Chiaie, Simona; Ferrara, Laurent; Giannone, Domenico
  35. Oil price shocks, monetary policy and current account imbalances within a currency union By Baas, Timo; Belke, Ansgar
  36. La confrontation des systèmes institutionnels nationaux dans l'interdépendance : les échanges gaziers UE-Russie By Catherine Locatelli
  37. Bank Liquidity, Credit Supply, and the Environment By Ross Levine; Chen Lin; Zigan Wang; Wensi Xie
  38. Welfare Gains from Market Insurance: The Case of Mexican Oil Price Risk By Chang Ma; Fabian Valencia
  39. Climate Change Around the World By Anthony Smith; Per Krusell
  40. Phasing out energy subsidies as part of Egypt’s economic reform program: Impacts and policy implications: By Breisinger, Clemens; Mukashov, Askar; Raouf, Mariam; Wiebelt, Manfred
  41. An efficient and implementable auction for environmental rights By Peyman Khezr; Ian A. MacKenzie
  42. What are the key drivers of the decision to invest in energy efficiency retrofitting in condominiums ? By Odile Blanchard; Anna Risch
  43. Introducing Carbon Taxes at Member State Level. Issues and Barriers By Stefan E. Weishaar
  44. Designing Coalition-Based Fair and Stable Pricing Mechanisms Under Private Information on Consumers' Reservation Prices By Hélène Le Cadre; Bernardo Pagnoncelli; Tito Homem-De-Mello; Olivier Beaude

  1. By: Göke, Leonard (RWTH Aachen University); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In most European countries, taxes and levies, the state-induced components of electricity prices, constitute the major share of electricity prices for consumers and are charged at a fixed rate. This study analyzes whether switching stateinduced price components to time varying rates can support the integration of variable renewables (VRE) and, thus, help to efficiently achieve the overarching goal of decarbonizing the energy system. Based on game theory and linear programming, we introduce a novel simulation model of the power market. For a quantitative case study, the model is parametrized to represent a German energy system that meets the political objective to increase the share of renewables (RE) in power generation to 80% in 2050. We find that dynamization supports the integration of VRE into the energy system. Whether dynamization is an efficient instrument to promote decarbonization as well is highly dependent on the policy framework in place.
    Keywords: Dynamization; Climate policy; Variable renewables; Integration costs; Welfare analysis; Energy market model
    JEL: C61 C63 C70 Q42 Q48
    Date: 2017–12
  2. By: de Jong, Jacques; Hassel, Arndt; Egenhofer, Christian; Jansen, Jaap; Xu, Zheng
    Abstract: Electricity will play a greater role in the transport and building sectors and all decarbonisation scenarios point to the increasing electrification of the energy system. To reach EU climate change targets, however, electricity will need to come increasingly from low carbon sources, especially (but not only) from variable renewable energy sources. Both trends - the electrification of sectors and the need to integrate electricity from variable renewables - mean that the electricity sector should become more flexible. This report reflects the discussions held in the CEPS Energy Climate House Task Force on Creating a Market Design for Flexibility in EU Electricity Markets, which met between April and September 2017. The Task Force formulated a number of recommendations in the areas of short-term and balancing markets; grid reinforcement and cross-zonal capacity allocation; aggregation; priority dispatch; DSOs (distribution system operators); and sectoral integration.
    Date: 2017–10
  3. By: Krishnamurthy, Chandra K.B. (CERE - the Center for Environmental and Resource Economics); Vesterberg, Mattias (CERE - the Center for Environmental and Resource Economics); Böök, Herman (Finnish Meteorological Institute); Lindfors, Anders V. (Finnish Meteorological Institute); Svento, Rauli (Oulu Business School)
    Abstract: Previous empirical literature on residential dynamic pricing for the Nordic market has questioned whether households will in fact appropriately respond, in view of the low price variability and price responsiveness in the Swedish setting. Household demand response is an issue of some importance in view of increasingly smart grids in which high shares of renewable supply are being promoted partly in view of these possibilities. In addition, an important development in the Nordic market relates to increasing thrust on household PV panels. In view of the interaction between RTP-driven and PV generation-driven load changes, an analysis of the combined effects in relation to system timing is important to understand, not least because this can affect the nature of benefits to households and the electric grid. Using a unique and very detailed dataset on household electricity consumption, in combination with simulated solar panel micro-generation data, these aspects are explored in an empirical framework similar to that used in the prior literature. Our findings indicate that even with minimal price responsiveness, household response to dynamic pricing can lead to load changes with sizeable benefits. In addition, the introduction of PV panels, contrary to what may be assumed at a first glance, appear to be beneficial to the electric grid, largely due to the time pattern of winter PV generation. Overall, our empirical findings provide tentative evidence to indicate that RTP, by incentivizing households to provide demand response at appropriate times, can aid in integration of renewables.
    Keywords: Real time electricity pricing; energy demand; renewable energy; intermittency
    JEL: C10 D12 Q41
    Date: 2018–03–19
  4. By: Claudia Kettner-Marx (WIFO); Daniela Kletzan-Slamanig (WIFO)
    Abstract: Economic literature generally favours market-based instruments for regulating environmental externalities since they ensure compliance at the least cost to society. Emission taxes have been increasingly introduced internationally, with the focus shifting to CO2 after the adoption of the Kyoto Protocol in 1997. In this paper, the theoretical economic literature on energy and emission taxes is reviewed. The focus is on theoretical recommendations regarding the optimal design of environmental and especially carbon taxes, their performance relative to other instruments, the concept of a double dividend as well as potential competitiveness and distribution effects. Carbon taxation can play a key role in climate policy and for achieving long-term emission reductions. This overview of economic considerations may help in creating a sustainable, effective and efficient regulatory system for reducing emissions.
    Keywords: climate policy, carbon pricing, instrument choice, market-based instruments, environmental tax reform
    Date: 2018–02–23
  5. By: Jeyhun I. Mikayilov; Marzio Galeotti; Fakhri J. Hasanov
    Abstract: This paper examines the relationship between the economic growth and CO2 emissions in Azerbaijan.A cointegration analysis is conducted over the period 1992-2013. For getting more robust results, Johansen, ARDLBT, DOLS, FMOLS and CCR methods to explore cointegration and estimate longrun coefficients are employed. We use cubic, quadratic and linear specifications and conclude that the last one is an adequate representation for the impact of the economic growth on CO2 emissions in Azerbaijan. The results from the different cointegration methods are consistent with each other and show that the economic growth has positive and significant impact on the emissions in the long-run implying that the EKC hypothesis does not hold for Azerbaijan. Moreover, we find that any short-run disequilibrium can be corrected towards the long-run equilibrium path within less than one year. The paper concludes that increasing the energy efficiency can be considered as a relevant environmental policy in order to reduce the carbon emissions.
    Keywords: CO2 emissions, cointegration, economic growth, EKC hypothesis; Azerbaijan
    JEL: C32 Q01 Q43 Q52 Q53 Q56
    Date: 2018
  6. By: Jansen, Jaap
    Abstract: The European Commission’s Renewable Energy Directive of 2001 mandated EU member states to develop a system for the guarantees of origin (GOs) of renewable electricity. In 2016, this market had an estimated value of €120 million per year across the EU, of which €100 million was income for generators of renewable electricity. Yet the GO system has been criticised for lacking environmental credibility and having little impact. The current legislation of the GO instrument leads to an oversupplied GO market and a double-counting problem. This enables suppliers who want to launch renewable electricity products, and corporations seeking to make their electricity demand more renewable, to do so in a legally correct and cheap but environmentally questionable way, which leads to little or no extra generation of renewable electricity. The author argues that well-designed reforms could address these weaknesses and provide additional, consumer-driven income streams to help realise new renewable energy projects in the future. He proposes a number of recommendations for action.
    Date: 2017–07
  7. By: Elizabeth Baldwin; Yongyang Cai; Karlygash Kuralbayeva
    Abstract: We investigate how irreversibility in “dirty” and “clean” capital stocks affects optimal climate policy, from both theoretical and numerical perspectives. An increasing carbon tax will reduce investments in assets that pollute, and so reduce emissions in the short term: our “irreversibility effect”. As such the “Green Paradox” has a converse if we focus on demand side capital stock effects. We also show that the optimal subsidy increases with the deployment rate: our “acceleration effect”. Considering second-best settings, we show that, although carbon taxes achieve stringent targets more efficiently, in fact renewable subsidies deliver higher welfare when policy is more mild.
    Keywords: infrastructure, clean and dirty energy inputs, renewable energy, stranded assets, carbon budget, climate change policies, Green Paradox
    JEL: O44 Q54 Q58
    Date: 2018
  8. By: Akimoto, Keigo; Aldy, Joseph; Aleluia Reis, Lara; Carraro, Carlo; Pizer, Billy; Tavoni, Massimo
    Abstract: National governments have submitted emission mitigation pledges under the Paris Agreement that vary considerably in their form, level of required emission mitigation, elaboration of non-emission goals, and implementation strategies. As a result, domestic emission mitigation programs necessary to deliver on the Paris pledges will diverge in the degree to which that mitigation will be achieved at least cost. This paper explores both what we learn from how national determined contributions (NDCs) diverge from least-cost policies and the implications for comparing mitigation effort. The NDCs can reveal a country's preferences over climate policy, economic development, and other priorities. Modeling analysis of the NDCs can highlight opportunities for (i) measuring the revealed cost of institutional and political constraints that limit least cost implementation; (ii) mitigating climate change alongside other policy objectives; (iii) policy learning over time. We undertake two case studies based on global energy-economic models to illustrate how implementation of NDCs may deviate from least-cost implementation. In the first case study, we employ the WITCH model to assess how the non-emissions goals in NDCs may constrain implementation in a way that increases costs related to cost-effective emissions abatement. In the second case study, we employ the DNE21+ model to assess how countries' stated domestic implementation policies may diverge from a cost-effective domestic mitigation policy. These modelling analyses serve to illustrate how comparing mitigation implementation can then be represented by a bounding exercise that develops both conservative and generous estimates of mitigation effort.
    Keywords: comparability of effort; Emissions mitigation; international environmental agreements; modeling analysis; nationally determined contributions
    Date: 2018–02
  9. By: Francois Cohen; Giulia Valacchi
    Abstract: Climate policy will predominantly affect industries that primarily rely on fossil fuels, such as steelmaking. Within these industries, exposure may be different by country according to the energy-intensity of national plants. We estimate the effect of coal prices on steel plant location worldwide and production preferences for BOF, a polluting technology, and EAF, a greener one. A 1% increase in national coal prices reduces BOF and EAF installed capacity by around 0.51% and 0.34% respectively. We simulate the implementation of a stringent European carbon market with no border adjustment and find a non-negligible shift in steel production outside Europe, with limited impact on the technologies employed to produce steel. If applied worldwide, the same policy would primarily affect production in Asia, which relies on BOF and currently benefits from lower coal prices.
    Keywords: Steel industry;.; Steel industry; firm relocation; technological change; energy prices
    JEL: O14 O33 Q41 Q42
    Date: 2017–09–15
  10. By: Quentin Hoarau (UP11 - Université Paris-Sud - Paris 11); Yannick Perez (UP11 - Université Paris-Sud - Paris 11)
    Abstract: Photovoltaic generation and electric mobility are both disruptive technologies in the power and transport sectors raising several issues regarding power grids. Precisely, questions about synergistic potentials when combining these two technologies have attracted academics' interest. Recent researches on this topic demonstrate that interactions between photovoltaic generation and electric mobility could decrease the overall burden on power grids, and empower one technology with the others specificities. Indeed, electric vehicles could use photovoltaic energy and benefit from a low-cost and carbon-free electricity to charge. In return, photovoltaic systems would use the bi-directional flexibility of electric vehicles battery to maximize their self-consumption. As these synergies operate, these technologies economic spillovers may improve, stimulating their joint deployment. The objective of this paper is to develop a systematic framework in order to review the different underlying conditions for synergy as they have been studied in the literature. It appears that this synergy was driven by technical characteristics as well as economic aspects. First, this synergy happens in middle-sized spatial configuration (large workplace buildings and charging station) and less obviously at other scales and in situation of technologically diversified system. Second, if it was poorly studied in the literature, the economic context (cooperation level between stakeholders, regulation and policies...) of interactions between photovoltaic generation and electric mobility is crucial for a successful synergy. Finally, we identify several remaining issues about these conditions that further researches could investigate.
    Date: 2018–02–21
  11. By: Egenhofer, Christian; Stroia, Cristian
    Abstract: The Central and South-Eastern Europe Gas Connectivity (CESEC) initiative brings together EU and non-EU countries under a single regional framework promoting energy policy cooperation. All states in the region share common challenges in the areas of energy security and energy market development that can best be addressed via a joint regional approach. To date, the initiative has been a major political success for all those participating – the European Commission, the member states and the Energy Community contracting parties – which together have taken ambitious steps towards the creation of a regional energy security framework on the back of a regional energy market. Essential elements include the high-level political commitment, the prioritisation of a limited number of key infrastructure projects and the smart mobilisation of available EU funding. These accomplishments are relevant for the successful implementation of the initiative’s next phase, CESEC 2.0, which will see its extension to electricity markets, renewables and energy efficiency, for which the high-level meeting in Bucharest on 27-28 September 2017 is expected to lead the way.
    Date: 2017–09
  12. By: Stefan E. Weishaar
    Abstract: The excitement about concluding the Paris Agreement is giving way to the sobering realisation that a lot more needs to be done to attain its climate policy objective. More and more EU member countries embrace carbon taxes but the national measures differ strongly. In an integrated European market this challenges the level playing field of competing industries and the transboundary nature of regulating a global pollutant and calls for a solution on EU level (or higher). Past attempts to regulate carbon emissions at EU level by fiscal measures have, however, been markedly unsuccessful. This paper therefore examines introduction issues and barriers of a CO2 tax at EU level and offers policy suggestions to move forward.
    Keywords: EU Law, Carbon taxes, Climate change
    Date: 2018–02–23
  13. By: Egenhofer, Christian; Stroia, Cristian
    Abstract: In late December 2016 and early 2017, South Eastern Europe experienced an extended cold spell lasting almost six weeks and triggering an electricity ‘crisis’, which seriously affected EU member states as well as Energy Community countries, notably Bulgaria, Romania, Greece and FYR of Macedonia. These countries opted to tackle the actual or perceived supply situation via a traditional path of administrative interventions, based on a purely national perspective and requiring the addition of considerable capacity. This approach departed sharply from the solutions discussed within the Central and South Eastern Europe Energy Connectivity (CESEC) initiative, launched by the European Commission in 2015 with the aim of integrating markets to address energy security in the region. One of the possible outcomes from the cold spell might well be that governments in the region come to realise that they have few options other than to integrate with their neighbours, increase energy efficiency and support renewable energy, whose cost by now is comparable to conventional sources and, given its scalability, poses less economic risks for investors.
    Keywords: electricity crisis, regional cooperation, energy security
    Date: 2017–12
  14. By: Grubb, M.; Mercure, J.; Salas, P.; Lange, R.
    Abstract: This paper develops a stylised mathematical interpretation of innovation and inertia in economic systems, characteristics which feature in economics literature traceable back at least to Schumpeter and other economic theorists of innovation, as well as economic historians. Such characteristics are particularly important in energy systems and their potential response to climate change, where it is important to distinguish operational/fuel substitution from investment because the latter necessarily embodies both inertia and innovation, in systems as well as technologies. We argue that integrated assessments of climate abatement need to focus on investment, including the associated characteristics of both learning and inertia, and derive in detail the mathematical basis for incorporating these factors through marginal investment cost curves. From this we also introduce the concept of ‘pliability’ as an expression of the ratio between costs which are significant but transitional (including learning investments, infrastructure and overcoming inertia), as compared to the enduring costs implied by purely exogenous technology assumptions. We then incorporate these features in a global model of optimal climate mitigation and show that they can generate a very different profile and pattern of results from traditional ‘integrated assessment’ models, pinpointing the key sensitivities. We conclude that alongside all the attention devoted to evaluating climate change impacts and technology scenarios, far more effort should be devoted to understanding the structural characteristics of how the global energy system may respond to climate change mitigation.
    Keywords: Innovation, path dependence, inertia, learning by doing, climate change abatement, endogenous technological change, energy systems
    JEL: B52 L50 O33 O38 Q40 Q54
    Date: 2018–03–12
  15. By: Jeyhun I. Mikayilov; Fakhri J. Hasanov; Marzio Galeotti
    Abstract: The relationship between CO2 emissions, the main gas responsible for global warming, and economic growth is among the most studied themes of environmental economics. Reducing overall emissions while keeping a high pace of economic development is at the heart of the notion of sustainable development. Economists refer to the case when emissions increase (resp. decrease) less rapidly than the pace of economic growth as relative (resp. absolute) decoupling. This requires the empirical analysis of the emissions-GDP relationship. The study of this relationship has special importance for developed countries, since they have been historically the main contributors of the global warming. Unlike the bulk of the literature, in this paper we allow the income elasticity of emissions – a critical metrics for the study of decoupling – to vary over time. The reason is that the elasticity might change through the time due to the factors affecting the drivers of the CO2 emissions. We use a time-varying coefficients cointegration approach to investigate the CO2 emissions-GDP relationship for 12 Western European countries over a long period ranging from 1861 to 2015. The main finding is that the income elasticities of CO2 emissions are found to be positive in all investigated countries. In addition, we find evidence in favor of relative decoupling – emissions increasing more slowly than GDP – in 8 out of the 12 European countries. The remaining 4 cases the income elasticity of CO2 emissions are in excess of unity. In nearly half of cases the analysis confirms a statistically significant time-varying pattern for the income elasticities.
    Keywords: CO2 emissions, time-varying coefficient cointegration, economic growth, EKC hypothesis, decoupling
    JEL: C14 C32 Q01 Q43 Q52 Q53 Q56
    Date: 2018
  16. By: Xican Xi (International Monetary Fund and Fudan University); Adrian Peralta-Alva (International Monetary Fund); Marina Mendes Tavares (ITAM and IMF)
    Abstract: Energy is an important production input and also the largest source of greenhouse gas emissions. Reducing energy use per unit output, or so-called energy intensity, is key to promote economic efficiency and to reduce greenhouse gas emissions. In this paper, we study cross-country differences in energy intensity. We document a hump-shape relation between energy intensity and income per capita across countries, which is explained by cross-country differences in energy intensity of the industrial sector and by sectoral composition. We then extend the development accounting framework to understand the cross-country differences in industrial energy intensity. We find that energy-saving technologies account for most of the differences in industrial energy intensity, while energy prices and the industrial composition play a minor role.
    Date: 2017
  17. By: Gustavo Andreão; Michelle Hallacka; Miguel Vazqueza;
    Abstract: Renewable energy promotion mechanisms have two main dimensions: enhancing project revenue and decreasing costs. Capital costs are one of the most relevant. Brazil is used as case study. Financial tools intertwined with industrial policy were applied: first to successfully promote wind generation, and then for solar photovoltaic (PV). The tools applied for wind were transposed to solar PV. Nevertheless, this has led to important challenges caused by the maladaptation of incentives to the solar PV industry specificities (e.g. high effort of innovation, lower transportation costs, and high importance of soft costs). We show how the use of similar financing support mechanism indistinctly for renewable sources (such as solar and wind) can create actual disincentives. We conclude that the financing mechanism has been fundamental for the viability of renewable energy projects, especially in countries without mature capital markets, where most of the infrastructure has received some sort of government financing support. The design of this mechanism needs to take into account the technological specificities and the national characteristics in order to successfully insert a certain renewable source in a determined country. The framework developed can be applied to other study cases.
    Keywords: Financing, Development Bank, RES-E, Wind, Solar, Mechanism design.
    JEL: D02 D82 G20 L94 O33 Q42
    Date: 2017
  18. By: Joseph E. Aldy; Todd D. Gerarden; Richard L. Sweeney
    Abstract: This paper examines the choice between subsidizing investment or output to promote socially-desirable production. We exploit a natural experiment in which wind farm developers could choose an investment or output subsidy to estimate the impact of these instruments on productivity. Using regression discontinuity and matching estimators, we find that wind farms claiming the investment subsidy produced 10 to 11 percent less power than wind farms claiming the output subsidy, and that this effect reflects subsidy incentives rather than selection. The introduction of investment subsidies caused the Federal government to spend 12 percent more per unit of output from wind farms.
    JEL: H23 Q42 Q48
    Date: 2018–03
  19. By: Ngawang Dendup (Graduate School of Economics, Waseda University, Tokyo, Japan); Toshi H. Arimura (Faculty of Political Science and Economics, Waseda University, Tokyo, Japan)
    Abstract: The outcome of household choice depends on the private information available to an agent, particularly in terms of costs and benefits. This study examines the role of information in the adoption of clean cooking fuel in Bhutan. We use a rural subsample of nationally representative data from the 2012 Bhutan Living Standard Survey (BLSS) conducted in all twenty districts. We estimate a bivariate probit model to control for the potentially endogenous information variable. The results indicate that households that have access to information are approximately 40 percent more likely to adopt clean cooking fuel. Similarly, households are 49 percent less likely to adopt dirty fuel (firewood) when exposed to information. Other factors such as education, the electricity supply, access to liquidity and the distance to the market are important factors that contribute to adopting clean cooking fuel. The results also show that the effect of information varies depending on the level of education of the household heads, thus highlighting the importance of accounting for the level of education of information recipients when designing a similar information provision.
    Keywords: clean fuel, information, operator, environment, indoor air pollution
    JEL: Q50 Q55
    Date: 2018–03
  20. By: Patrick Alexander; Louis Poirier
    Abstract: The impact of oil price shocks on the U.S. economy is a topic of considerable debate. In this paper, we examine the response of U.S. consumers to the 2014–2015 negative oil price shock using representative survey data from the Consumer Expenditure Survey. We propose a difference-in-difference identification strategy based on two factors, vehicle ownership and gasoline reliance, which generate variation in exposure to oil price shocks across consumers. Our findings suggest that exposed consumers significantly increased their spending relative to non-exposed consumers when oil prices fell, and that the average marginal propensity to consume out of gasoline savings was above 1. Across products, we find that consumers increased spending especially on transportation goods and non-essential items.
    Keywords: Business fluctuations and cycles, Domestic demand and components, Recent economic and financial developments
    JEL: D12 E21 Q43
    Date: 2018
  21. By: Christophe Muller (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales); Huijie Yan (CEARC - Cultures, Environnements, Arctique, Représentations, Climat - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The household transition from dirty to clean fuels is important because of its economic, health and environment consequences, locally, nationally and globally. In order to study fuel choices, a non-separated farm household model for fuel demands is developed. Then, discrete choice equations of fuel uses, consistent with this theoretical model, are estimated using microeconomic household panel data from rural China. The estimation results support the theoretical approach that implies that the fuel demands depend not only on income, fuel prices, and demand-side socioeconomic factors, as would occur in the standard fuel demand models in the literature, but also on food prices, agricultural assets, and original household and community characteristics that shape the household responses to market failures. Finally, we present a few policy simulations that reveal the complex substitution impact of energy price policies in China. We provide the first evidence on: price sensitivity of fuel stacking, that food prices exert some pressure on the fuel transition, the role of farm work and activity specialization in fuel choices. Policies should incorporate some of the complexity of the non-separated decisions of rural households in this context of market failures. The complex cross-price effects imply that the policy pricing mechanisms should account for all energy types and food prices. Finally, market-based policies should be coupled with policy interventions aimed at increasing the opportunity cost of dirty fuels. .
    Keywords: fuel use,China,consumption demand,energy
    Date: 2018–03–16
  22. By: Haenel, Hans-Dieter; Rösemann, Claus; Dämmgen, Ulrich; Döring, Ulrike; Wulf, Sebastian; Eurich-Menden, Brigitte; Freibauer, Annette; Döhler, Helmut; Schreiner, Carsten; Osterburg, Bernhard
    Abstract: The report at hand (including a comprehensive annex of data) serves as additional document to the National Inventory Report (NIR) on the German green house gas emissions and the Informative Inventory Report (IIR) on the German emissions of air pollutants (especially ammonia). The report documents the calculation methods used in the German agricultural inventory model GAS-EM as well as input data, emission results and uncertainties of the emission reporting submission 2018 for the years 1990 - 2016. In this context the sector Agriculture comprises the emissions from animal husbandry, the use of agricultural soils and anaerobic digestion of energy crops. As required by the guidelines, emissions from activities preceding agriculture, from the use of energy and from land use change are reported elsewhere in the national inventories. [...]
    Keywords: emission inventory,agriculture,animal husbandry,agricultural soils,anaerobic digestion,energy crops,renewable primary products,greenhouse gases,air pollutants,methane,loughing gas,ammonia,particulate matter,Emissionsinventar,Landwirtschaft,Tierhaltung,landwirtschaftliche Böden,anaerobe Vergärung,Energiepflanzen,nachwachsende Rohstoffe,Treibhausgase,Luftschadstoffe,Methan,Lachgas,Ammoniak,luftgetragene Partikel
    Date: 2018
  23. By: Elkerbout, Milan
    Abstract: The clean energy transition – necessitated by the Paris Agreement and implemented in the EU through the Energy Union strategy – is changing the industrial landscape in Europe. Viewed through the lens of competitiveness, this transition brings about threats as well as opportunities. This transition also leads to increased integration and linkages between climate and energy policies, on the one hand, and industrial policies, on the other. The short report is a first attempt to describe these linkages and thereby make a step towards identifying key issues and emerging policy questions while starting to hint at possible answers. It is meant as a background for discussion upon which to build further research.
    Keywords: Energy Union; energy transition; EU ETS; climate and industrial policy; innovation finance
    Date: 2017–12
  24. By: Ian W.H. Parry; Victor Mylonas
    Abstract: The pan-Canadian approach to carbon pricing, announced in October 2016, ensures that carbon pricing applies throughout Canada in 2018, with increasing stringency over time to reduce emissions. Canadian provinces and territories have the flexibility to either implement an explicit price-based system—with a minimum price of CAN $10 per tonne of carbon dioxide equivalent in 2018, increasing to CAN $50 per tonne by 2022—or an equivalently scaled emissions trading system. This paper discusses the rationale for, and design of, the price floor requirement; its (provincial-level) environmental, fiscal, and economic welfare impacts; monitoring issues; and (national-level) incidence. The general conclusion is that the welfare costs and implementation issues are manageable, and pricing provides significant new revenues. A challenge is that the floor price by itself appears well short of what will be needed by 2030 for Canada’s Paris Agreement pledge.
    Date: 2018–03–08
  25. By: Charles F. Mason; Rémi Morin Chassé
    Abstract: The existing economics literature neglects the important role of capacity in the production of renewable energy. To fiill this gap, we construct a model in which renewable energy production is tied to renewable energy capacity, which then becomes a form of capital. This capacity capital can be increased through investment, which we interpret as arising from the allocation of energy, and which therefore comes at the cost of reduced general production. Requiring societal well-being to never decline, we describe how society could optimally elect to split energy in this fashion, the use of non-renewable energy resources, the use of renewable energy resources, and the implied time path of societal well-being. Our model delivers an empirically satisfactory explanation for simultaneous use of non-renewable and renewable energy. We also discuss the optimality of ceasing use of non-renewable energy before the non-renewable resource stock is fully exhausted.
    Keywords: sustainability, energy, resource use
    JEL: C61 Q42 Q56
    Date: 2018
  26. By: Badia, Marc; Duro, Miguel; Jorgensen, Bjorn N.; Ormazabal, Gaizka
    Abstract: We exploit two regulatory shocks to examine the informational effects of tightening pre-existing mandatory disclosure rules. Canadian Rule NI 51-101 and the US "Modernization of Oil and Gas Reporting" introduced a quasi-identical tightening of the rules governing oil and gas reserve disclosures in Canada and the US at different times. Both in Canada and the US, we document significant changes in firms' reporting outcomes when the new regulation is introduced. We also find that the reserve disclosures filed under the new regulations are more closely associated with stock price changes and with decreases in bid-ask spreads. Our findings are robust to controlling for other confounding factors such as time trends, other information disclosed simultaneously, financial reporting incentives, mispricing and monitoring efforts.
    Keywords: Disclosure of Oil; Disclosure Rules; Gas Reserves
    JEL: M41
    Date: 2018–03
  27. By: Mohammad Reza Farzanegan; Tim Krieger
    Abstract: We study the short and long run responses of income inequality to positive per capita oil and gas rent shocks in Iran. Using historical data from 1973 to 2012 and vector autoregression (VAR)-based impulse response functions, we find a positive and statistically significant response of income inequality to oil rent booms within 4 years of the shock. In addition, the Autoregressive-Distributed Lag (ARDL) results show that in the long run, a 10-percent increase in oil and gas rents per capita leads to an approximately 1.4-percent increase in income inequality. The results are robust to controlling for different channels potentially affecting the income distribution in Iran. Our analysis can help policymakers evaluate and accommodate the possible positive or negative effects on inequality in Iran resulting from the 2016 lifting of the embargo against the country.
    Keywords: oil rents, inequality, VAR, ARDL, sanctions, Iran
    JEL: Q33 Q38 D63
    Date: 2018
  28. By: Roar Adland (Norwegian School of Economics and Business Administration - Norwegian School of Economics and Business Administration); Pierre Cariou (KEDGE Business School [Talence] - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche); François-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - UN - Université de Nantes, INED - Institut national d'études démographiques)
    Abstract: This paper investigates whether the energy efficiency of vessels is reflected in sales prices in the second-hand market. Using unique data of nearly 1,600 sales transactions over a 21-year period, we consider a hedonic pricing framework in which we control for market conditions, vessel specifications and buyers’ country of origin to identify the specific impact from energy efficiency. Using two indicators for energy efficiency, we find a negative relationship between energy efficiency and sale price with an elasticity around 0.4. Furthermore, our results show a reduction in the influence of energy efficiency on asset values during the drybulk market boom in 2003-2008 compared to the remainder of the sample.
    Keywords: energy efficiency,vessel price,second-hand transactions,bulkers
    Date: 2018–02–12
  29. By: Penelope Buckley (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes); Daniel Llerena (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes)
    Abstract: The aim of demand response is to make energy consumption more flexible during peak periods. Using a contextualised CPR framework, we study energy consumption choices. Subjects decide the consumption level of five activities during 10 periods. The total consumption of these activities is the CPR contribution, and payoffs depend on own consumption and the amount consumed by the group. In the nudge treatment, subjects are nudged towards the socially optimal level of consumption using injunctive norms. The average consumption observed in the nudge treatment is used to calculate the price implemented in the price treatment. The objective is to quantify the nudge via an equivalent price. The main hypotheses are: consumption choices will be lower in the treatment groups compared to the control groups; when the price level is fixed according to the nudge result, consumption choices in the price treatment will be equivalent to those in the nudge treatment. Across all 10 periods, consumption is significantly lower in the nudge treatment, and higher for control groups. In the price treatment, consumption remains between the two at or slightly above the target. We conclude that the nudge treatment performs as well as an equivalent price without the implied loss of welfare. When comparing decisions under the nudge and price treatments to the control groups, the consumption decisions are significantly different from period 2 for the nudge and, consistently different from period 7 for the price. We conclude that the nudge is understood and integrated into subjects' decision making quicker than an equivalent price.
    Keywords: common pool resource, Demand Response, incentives, laboratory experiment, nudge, price
    Date: 2018–02–07
  30. By: Julien Prat; Benjamin Walter
    Abstract: We propose a model which uses the Bitcoin/US dollar exchange rate to predict the computing power of the Bitcoin network. We show that free entry places an upper-bound on mining revenues and we devise a structural framework to measure its value. Calibrating the model’s parameters allows us to accurately forecast the evolution of the network computing power over time. We establish the accuracy of the model through out-of-sample tests and investigation of the entry rule.
    Keywords: Bitcoin, blockchain, miners, industry dynamics
    JEL: D41 L10
    Date: 2018
  31. By: Kim, Seung-Leul; Lee, Sang-Ho
    Abstract: This study investigates environmental policy on the fixed-fee licensing strategy of clean eco-technology by an innovator having foreign ownership. We show that near-zero emission taxes accompanied by non-exclusive licensing regulation can improve social welfare when the cost gap is small or foreign penetration is high. However, when foreign ownership is not high, exclusive licensing regulations with an appropriate emission tax policy may improve social welfare.
    Keywords: Environmental policy; fixed-fee licensing; eco-technology; foreign penetration
    JEL: D45 L5
    Date: 2016–05–18
  32. By: Hassel, Arndt; Stroia, Cristian; Egenhofer, Christian; Jansen, Jaap; Behrens, Arno
    Abstract: As part of the “Clean Energy for All Europeans” package, the European Commission has proposed a Regulation on risk-preparedness in the electricity sector that aims to improve cooperation among member states in preventing, preparing for and managing electricity crises. To reap the benefits of improved cooperation compared with the current diverging national approaches, the proposal foresees, inter alia, national risk-preparedness plans, a number of principles for crisis management and ex post crisis evaluation. This Policy Insight analyses the proposal and confronts it with a case study about a recent crisis in South East Europe (in January 2017). Among other conclusions, the findings suggest that the Regulation’s provisions for clear rules and national/regional procedures for crisis management and for evaluating crisis management ex post (i.e. whether the rules were followed) are appropriate, but they may need strengthening.
    Date: 2017–07
  33. By: Barnes, Alex
    Abstract: Nord Stream 2 is criticised on grounds that it undermines the functioning of the European gas market and makes European gas consumers worse off. Its critics also claim that the project has no economic rationale, would reduce security of supply, weaken European solidarity and the Energy Union, and also destabilise Ukraine. This CEPS Policy Insight, contributed by a Nord Stream 2 AG market expert, attempts to counter these criticisms by presenting recent economic analysis bearing on these matters. It explains how Nord Stream 2 cannot undermine the European gas market because of the rules already in place. It concludes that the project will be beneficial to European gas consumers by strengthening gas-to-gas competition between piped gas and LNG for supply to the EU. It also finds that fears that Nord Stream 2 will further destabilise Ukraine are exaggerated and sees a continued role of the country in gas transit to the EU.
    Date: 2017–12
  34. By: Delle Chiaie, Simona; Ferrara, Laurent; Giannone, Domenico
    Abstract: In this paper we extract latent factors from a large cross-section of commodity prices, including fuel and non-fuel commodities. We decompose each commodity price series into a global (or common) component, block-specific components, and a purely idiosyncratic shock. We find that the bulk of the uctuations in commodity prices is well summarized by a single global factor. This global factor is closely related to fluctuations in global economic activity and its importance in explaining variations in commodity prices has increased since the beginning of the 2000s, especially for oil.
    Date: 2018–03
  35. By: Baas, Timo; Belke, Ansgar
    Abstract: For more than two decades now, current-account imbalances are a crucial issue in the international policy debate as they threaten the stability of the world economy. More recently, the government debt crisis of the European Union shows that internal current account imbalances inside a currency union may also add to these risks. Oil price fluctuations and a contracting monetary policy that reacts on oil prices, previously discussed to affect the current account may also be a threat to the currency union by changing internal imbalances. Therefore, in this paper, we analyze the impact of oil price shocks on current account imbalances within a currency union. Differences in institutions, especially labor market institutions and trade result in an asymmetric reaction to an otherwise symmetric shock. In this context, we show that oil price shocks can have a long-lasting impact on internal balances, as the exchange rate adjustment mechanism is not available. The common monetary policy authority, however, can reduce such effects by specifying an optimum monetary policy target. Nevertheless, we also show that there is no single best solution. CPI, core CPI or an asymmetric CPI target all come at a cost either regarding an increase in unemployment or increasing imbalances.
    Keywords: Current account deficit, Oil price shocks, DSGE models, Search and matching labor market, Monetary policy JEL Classifications: E32, F32, F45, Q43
    Date: 2017–12
  36. By: Catherine Locatelli (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes)
    Abstract: Les interdépendances fortes entre l’UE et ses fournisseurs extérieurs en matière de gaz naturel mettent au premier plan les problématiques de conflits et de logiques contradictoires liées à la coexistence d’arrangements institutionnels différents dans l’échange. Cet enjeu émerge clairement sur la relation entre l’UE et la Russie. Dans le même temps, la confrontation de ces deux espaces institutionnels semble avoir un « impact transformatif » sur les régulations, les systèmes institutionnels et les politiques énergétiques de la Russie et de l’UE. Elle ouvre en particulier de nouvelles structures d’opportunités pour les acteurs impliqués. L’objet de cet article est d’analyser les conflits et risques économiques et institutionnels qui résultent de la confrontation de ces deux espaces de régulation. Il est ensuite de mettre en évidence les changements induits par l’interdépendance tant du côté de la Russie que du côté de l’UE.
    Keywords: Marché gazier de l'UE,Russie,système institutionnel
    Date: 2018–02
  37. By: Ross Levine; Chen Lin; Zigan Wang; Wensi Xie
    Abstract: We evaluate the impact of the credit conditions facing corporations on their emissions of toxic air pollutants. Exploiting cross-county, cross-time shale discoveries that generated liquidity windfalls at local bank branches, we construct measures of (1) the degree to which banks in non-shale counties, i.e., counties where shale was not discovered, receive liquidity shocks through their branches in shale counties and (2) the degree to which a corporation in a non-shale county has a relationship lender that receives liquidity shocks through its branches. From both the county- and firm-level analyses, we discover that positive shocks to credit conditions reduce corporate pollution.
    JEL: G21 O16 Q40 Q52 Q53
    Date: 2018–03
  38. By: Chang Ma; Fabian Valencia
    Abstract: Over the past two decades, Mexico has hedged oil price risk through the purchase of put options. We examine the resulting welfare gains using a standard sovereign default model calibrated to Mexican data. We show that hedging increases welfare by reducing income volatility and reducing risk spreads on sovereign debt. We find welfare gains equivalent to a permanent increase in consumption of 0.44 percent with 90 percent of these gains stemming from lower risk spreads.
    Date: 2018–03–02
  39. By: Anthony Smith (Yale University); Per Krusell (Stockholm University)
    Abstract: This paper builds a highly disaggregated, dynamic, general equilibrium model of interactions between the climate and the economy. The model consists of approximately 19,000 1-degree by 1-degree regions containing land. Regional climates (or average annual temperatures) respond differently to increases in the Earth's temperature, and regional productivity varies with regional temperature. Each region makes optimal consumption-savings decisions in response to its changing productivity in one of two extreme market structures: autarky and free capital mobility. The relationship between regional temperature and productivity has an inverse U-shape, calibrated so that the many-region model replicates estimates of aggregate global damages from climate change; the implied optimal temperature is approximately twelve degrees. The central result is that climate change affects regions very differently, with many regions gaining while others lose. Although a tax on carbon increases average welfare, there is a large disparity of views across regions, with both winners and losers. These findings depend very little on the structure of capital markets.
    Date: 2017
  40. By: Breisinger, Clemens; Mukashov, Askar; Raouf, Mariam; Wiebelt, Manfred
    Abstract: In order to address long-standing economic challenges, in 2016 the Government of Egypt (GOE) put in place a major economic reform program to restore macroeconomic stability and to promote inclusive growth. As a result, there are early signs that the economy is rebounding and Egypt’s economic outlook is becoming more favorable. However, it is less clear how the ongoing reform program is affecting households, especially the poor. To shed light on this question, this paper uses an economy-wide model to estimate the distributional impacts of the energy subsidy cuts in 2014, 2016, and 2017, the currency devaluation at the end of 2016, and the expected complete phasing out of energy subsidies over the coming years.
    Keywords: EGYPT; ARAB COUNTRIES; MIDDLE EAST; NORTH AFRICA; AFRICA; subsidies; energy policies; energy; economic growth; household consumption; devaluation of currency; low income groups; impact assessment; energy subsidies; Computable General Equilibrium (CGE) model; energy prices; social protection
    Date: 2018
  41. By: Peyman Khezr (School of Economics, The University of Queensland); Ian A. MacKenzie (School of Economics, The University of Queensland)
    Abstract: This article proposes a simple and efficient auction design to allocate environmental rights, such as tradable pollution permits. We show that if the auctioneer limits the number of bids that each buyer submits—coupled with a simple ex-post supply adjustment rule—then truthful bidding is obtained. Consequently, the uniform-price auction becomes efficient and revenue superior to conventional uniform-price auctions that are currently observed in pollution markets.
    Keywords: auctions; multi-unit; uniform-price; efficiency, pollution.
    JEL: D44 D82 L10 Q50
    Date: 2018–02–27
  42. By: Odile Blanchard (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes); Anna Risch (GAEL - Laboratoire d'Economie Appliquée de Grenoble - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes)
    Abstract: In this study, we focus on a French program, named Mur Mur, introduced in the urban district of Grenoble in 2010 to increase the number of thermal retrofits in condominiums. This program (i) provides an energy assessment of the condominium and advices in terms of retrofitting to the co-owners and (ii) gives substantial subsidies to co-owners of condominiums that vote for a retrofit. To benefit from those subsidies, the majority of the co-owners of the condominiums simply have to vote in favour of and apply to the program, without any selection process. The only condition to be part of the program relates to the construction year of the building: condominiums must have been built between 1945 and 1975, i.e. before the first French thermal regulation. In this report, we have two objectives: first, identify the key variables in the decision to apply to the Mur Mur program; second, find out the main drivers of the decision to invest or not in thermal retrofitting for condominiums that applied to the program.
    Date: 2017
  43. By: Stefan E. Weishaar
    Abstract: This paper examines the implementation issues and barriers for introducing a carbon tax at EU member state level. Important success determinants are related to the political economy of introducing taxes (negotiations with stakeholders, concessions, changes in proposed legislation, compromises, etc.) which translate i.a. into competitiveness issues, and fairness/equity/distribution issues. For these the design of the carbon tax exemptions, and safeguards to prevent progressivity and the use of the tax proceeds are important. The analysis will focus on the "frontrunner" countries in the EU which have been very successful in terms of the introduction of carbon taxes (Sweden, Denmark and Finland). The countries employed different implementation strategies but underscore the importance of successful issue, timing, linking and to foster political support by safeguarding competitiveness and by addressing income distributions.
    Keywords: Carbon taxes, Climate change
    Date: 2018–02–23
  44. By: Hélène Le Cadre (EnergyVille); Bernardo Pagnoncelli (Santiago - University Adolfo Ibanez); Tito Homem-De-Mello (Santiago - University Adolfo Ibanez); Olivier Beaude (L2S - Laboratoire des signaux et systèmes - UP11 - Université Paris-Sud - Paris 11 - CentraleSupélec - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We model the relation between an aggregator and consumers joining a coalition to reduce the risk resulting from the unpredictability of their base load demand, as a Stackelberg game formulated as a mathematical bilevel program with private information on the consumers' reservation prices. At the upper-level of the Stackelberg game, the aggregator optimizes his daily price profile so as to reach a net targeted profit which is the maximum value guaranteeing that no consumer will leave the coalition - to contract with a conventional retailer considered here as a fixed alternative - while meeting fairness criterion imposed by the cost-sharing mechanism. At the lower-level, the consumers are asked to provide in day ahead an estimate of their base load hourly demand profile and to schedule their shiftable loads depending on the price signal sent by the aggregator. We provide algorithms that determine the unique price profile and consumer shiftable load schedules as functions of the reservation price estimates. The Stackelberg game between the aggregator and the consumers being repeated for a period of time, the aggregator has the possibility to update his estimates of the reservation prices relying on a feedback function which depends on the percentage of activated loads. A randomized algorithm for consumers' reservation price learning based on regret minimization is provided. For four cost-sharing mechanisms such as uniform allocation, stand-alone cost, Shapley value, separable and non-separable costs, we determine the closed form of the aggregator's optimal net targeted profit guaranteeing the stability of the coalition. We also determine conditions guaranteeing the core non-emptiness and prove that for a profit-maximizing aggregator, the stand-alone cost is always preferable to the Shapley value, which coincides with the uniform allocation. Furthermore, the optimal size of the coalition - in terms of the aggregator's profit - can be determined analytically when the Shapley value is implemented as cost-sharing mechanism. The results are illustrated on a case study where we show that there exists an optimal net targeted profit below which the consumers energy bill is lower when joining the aggregator than with the conventional retailer. Coalition dynamics is also analyzed numerically depending on the consumer inertia in their energy supplier choice process, for each cost-sharing mechanism.
    Keywords: Coalition Formation,Game Theory,Load Scheduling,Forecast Algorithm
    Date: 2018–02–15

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