nep-ene New Economics Papers
on Energy Economics
Issue of 2019‒11‒11
thirty-one papers chosen by
Roger Fouquet
London School of Economics

  1. Visualizing Energy Efficiency: A Randomized Controlled Intervention By Maya Papineau; Nicholas Rivers
  2. ElecSim: Monte-Carlo Open-Source Agent-Based Model to Inform Policy for Long-Term Electricity Planning By Alexander J. M. Kell; Matthew Forshaw; A. Stephen McGough
  3. Optimal Energy Taxes and Subsidies under a Cost-Effective Unilateral Climate Policy: Addressing Carbon Leakage By Peter Kjær Kruse-Andersen; Peter Birch Sørensen
  4. Locational investment signals in electricity markets - How to steer the siting of new generation capacity? By Eicke, Anselm; Khanna, Tarun; Hirth, Lion
  5. The Legal and Economic Case for an Auction Reserve Price in the EU Emissions Trading System By Carolyn Fischer; Leonie Reins; Dallas Burtraw; David Langlet; Åsa Löfgren; Michael Mehling; Stefan Weishaar; Lars Zetterberg; Harro van Asselt; Kati Kulovesi
  6. Quantifizierung lokaler externer Effekte fossiler Kraftwerke: eine empirische Analyse anhand von Lebenszufriedenheitsdaten By Hauke Lütkehaus
  7. Climate Change, Operating Flexibility, and Corporate Investment Decisions By Lin, Chen; Schmid, Thomas; Weisbach, Michael S.
  8. Oil Curse, Economic Growth and Trade Openness By Vespignani, Joaquin L.; Raghavan, Mala; Majumder, Monoj Kumar
  9. The emergence of relatedness between industries: The example of offshore oil and gas and offshore wind energy in Esbjerg, Denmark By Mads Bruun Ingstrup; Max-Peter Menzel
  10. A Short-Term Forecasting Model for Brent Oil Prices By Hamid Al Sadoon; Colin Ward; Jennifer Considine; Abdullah Aldayel
  11. What Predicts Government Trustworthiness in Cross-border HK-Guangdong Nuclear Safety Emergency Governance? By Han, Y.; Lam, J.; Guo, P.; Gou, Z.
  12. Drilling Down: The Impact of Oil Price Shocks on Housing Prices By Grossman, Valerie; Martínez-García, Enrique; Torres, Luis Bernardo; Sun, Yongzhi
  13. Renewable Energy, Trade Performance and the Conditional Role of Finance and Institutional Capacity of sub-Sahara African Countries By Opeyemi Akinyemi; Uchenna R. Efobi; Simplice A. Asongu; Evans S. Osabuohien
  14. Strategic Reneging in Sequential Imperfect Markets By David BENATIA; Etienne BILLETTE de VILLEMEUR
  15. The Propagation of Regional Shocks in Housing Markets: Evidence from Oil Price Shocks in Canada By Kilian, Lutz; Zhou, Xiaoqing
  16. Formative Experiences and the Price of Gasoline By Severen, Christopher; van Benthem, Arthur
  17. Carbon cost pass-through in industrial sectors By Neuhoff, K.; Ritz, R.
  18. Carsharing's Impact and Future By Shaheen, Susan PhD; Cohen, Adam; Farrar, Emily
  19. Smart Hedging Against Carbon Leakage By Christoph Böhringer; Knut Einar Rosendahl; Halvor Briseid Storrøsten
  20. Facts and Fiction in Oil Market Modeling By Kilian, Lutz
  21. Making Pollution into a Market Failure Rather Than a Cost-Shifting Success: The Suppression of Revolutionary Change in Economics By Clive L. Spash
  22. Facts and Fiction in Oil Market Modeling By Lutz Kilian
  23. Oil Prices and Stock Markets: A Review of the Theory and Empirical Evidence By Degiannakis, Stavros; Filis, George; Arora, Vipin
  24. Foreign Direct Investment, Domestic Investment and Green Growth in Nigeria: Any Spillovers? By Akintoye V. Adejumo; Simplice A. Asongu
  25. Refining the Workhorse Oil Market Model By Zhou, Xiaoqing
  26. Sustainability, innovation, and efficiency:A key relationship By Schilirò, Daniele
  27. Regional Integration and Energy Sustainability in Africa: Exploring the Challenges and Prospects for ECOWAS By Opeyemi Akinyemi; Uchenna Efobi; Evans Osabuohien; Philip Alege
  28. Currency Commodities and Causality: Some High-Frequency Evidence By Ahmed, Rashad
  29. A Regulated Market Under Sanctions: On Tail Dependence Between Oil, Gold, and Tehran Stock Exchange Index By Abootaleb Shirvani; Dimitri Volchenkov
  30. Access to and consumption of natural gas: spatial and sociodemographic drivers By Curtis, John; Tovar, Miguel Angel; Grilli, Gianluca
  31. Biogas: a real option to reduce greenhouse gas emissions By Zhu, Tong; Curtis, John; Clancy, Matthew

  1. By: Maya Papineau (Department of Economics, Carleton University); Nicholas Rivers (Graduate School of Public and International Affairs, University of Ottawa)
    Abstract: We test the energy consumption impact of providing visual information on residential home heat loss with a social norm that informs households of their heat loss rate relative to their neighbours, and compare this to the impact of a traditional home energy report. Heat loss is visualized using infrared images taken from above approximately 14,000 households using a thermal image sensor mounted on a small aircraft during the winter heating season. Infrared images showing roof heat loss were provided to approximately 4,500 randomly selected households in on-bill messaging. A similarly-sized randomly selected group received bill messaging with a ’traditional’ social norm comparing their consumption to similar homes. Both treatment groups were also shown a personalized estimate of the annual savings from reducing their consumption. Electricity and natural gas consumption are compared between treatment and control households during heating season over a one year period following the beginning of the intervention. After controlling for the estimated annual savings customers could achieve, natural gas consumption in the heat loss treatment falls by more than double the reduction in the traditional social norm, relative to control households. We conclude that home heat loss imaging and framing consumption in terms ofheat loss hold promise in increasing the savings achieved from home energy reports.
    Keywords: Energy efficiency, nudge
  2. By: Alexander J. M. Kell; Matthew Forshaw; A. Stephen McGough
    Abstract: Due to the threat of climate change, a transition from a fossil-fuel based system to one based on zero-carbon is required. However, this is not as simple as instantaneously closing down all fossil fuel energy generation and replacing them with renewable sources -- careful decisions need to be taken to ensure rapid but stable progress. To aid decision makers, we present a new tool, ElecSim, which is an open-sourced agent-based modelling framework used to examine the effect of policy on long-term investment decisions in electricity generation. ElecSim allows non-experts to rapidly prototype new ideas. Different techniques to model long-term electricity decisions are reviewed and used to motivate why agent-based models will become an important strategic tool for policy. We motivate why an open-source toolkit is required for long-term electricity planning. Actual electricity prices are compared with our model and we demonstrate that the use of a Monte-Carlo simulation in the system improves performance by $52.5\%$. Further, using ElecSim we demonstrate the effect of a carbon tax to encourage a low-carbon electricity supply. We show how a {\pounds}40 ($\$50$) per tonne of CO2 emitted would lead to 70% renewable electricity by 2050.
    Date: 2019–10
  3. By: Peter Kjær Kruse-Andersen; Peter Birch Sørensen
    Abstract: We analyze how a country pursuing a unilateral climate policy may contribute to a reduction in global CO2 emissions in a cost-effective way. To do so its system of energy taxes and subsidies must account for leakage of emissions from the domestic to the foreign economy. We focus on leakage occurring via international trade in electricity and via shifts between domestic and foreign production of other goods. The optimal tax-subsidy scheme is based on an intuitive principle: Impose a uniform carbon tax on all additions to global emissions caused by changes in domestic production and consumption of energy, including additions to emissions occurring via shifts in international trade. Emissions from the sector exposed to foreign competition should be taxed at reduced rates to avoid excessive carbon leakage, and a part of the carbon tax on electricity should be levied at the consumer rather than the producer level to ensure taxation of the carbon content of imported electricity. Producers of renewables-based electricity should receive a subsidy to internalize their contribution to the reduction of global emissions. In other sectors emissions should be taxed at a uniform rate corresponding to the marginal social cost of meeting the target for emissions reduction. Simulations calibrated to data for the Danish economy suggest that redesigning energy taxes and subsidies to account for carbon leakage can generate a welfare gain.
    Keywords: optimal unilateral climate policy, carbon leakage, optimal energy taxes and subsidies
    JEL: H21 H23 Q48 Q54
    Date: 2019
  4. By: Eicke, Anselm; Khanna, Tarun; Hirth, Lion
    Abstract: The location of new power generation capacity has a significant effect on the need for transmission infrastructure. Newly constructed power plants that are located far from consumption centers increase network losses, investment, and potentially congestion. In addition, lack of public acceptance for transmission extension may increase the relevance of geographical steering of generation investments. The primary objective of this paper is to compare the regulatory instruments that provide locational investment signals. We cluster these instruments into the five groups locational electricity markets, deep grid connection charges, grid usage charges, capacity mechanisms, and renewable energy support schemes. We discuss properties of these instruments and then review their use in twelve major power systems, including a quantitative estimate of their strength. We find that most power systems use multiple instruments in parallel and that there is a lack of consensus regarding how to steer generation capacity. The results also indicate that the efficacy of many instruments is reduced due to a lack of credibility, low levels of transparency, and insufficient spatial and temporal granularity.
    Keywords: Investment signal,Generators,Network infrastracture,Locational steering,Regulation,Locational electricity market,Grid usage charge,Grid connection charge,Capacity mechanism,Renewable energy support scheme
    JEL: Q48 Q41
    Date: 2019
  5. By: Carolyn Fischer; Leonie Reins; Dallas Burtraw; David Langlet; Åsa Löfgren; Michael Mehling; Stefan Weishaar; Lars Zetterberg; Harro van Asselt; Kati Kulovesi
    Abstract: When it was launched in 2005, the European Union emissions trading system (EU ETS) was projected to have prices of around €30/ton CO2 and to be a cornerstone of the EU’s climate policy. The reality was a cascade of falling prices, a ballooning privately held emissions bank, and a decade of low prices providing inadequate incentive to drive investment in the technologies and innovation necessary to achieve long-term climate goals. The European Commission responded with administrative measures, including postponing the introduction of allowances (backloading) and using a quantity-based criterion for regulating future allowance sales (the market stability reserve); although prices are beginning to recover, it is far from clear whether these measures will adequately support the price into the future. In the meantime, governments have been turning away from carbon pricing and adopting overlapping regulatory measures that reinforce low prices and further undermine the confidence in market-based approaches to addressing climate change. The solution in other carbon markets has been the introduction of a reserve price that would set a minimum price in allowance auctions. Opponents of an auction reserve price in the EU ETS have expressed concern that a minimum auction price would interfere with economic operations in the market or would be tantamount to a tax, which would trigger a decision rule requiring unanimity among EU Member States. This Article reviews the economic and legal arguments for and against an auction reserve price. Our economic analysis concludes that an auction reserve price is necessary to accommodate overlapping policies and for the allowance market to operate efficiently. Our legal analysis concludes that an auction reserve price is not a “provision primarily of a fiscal nature,” nor would it “significantly affect a Member State’s choice between different energy sources.” We describe pathways through which a reserve price could be introduced.
    Keywords: emissions trading, auction reserve price, carbon tax, price floor, EU law
    JEL: Q54 Q58 K32 K34
    Date: 2019
  6. By: Hauke Lütkehaus
    Abstract: In the course of the energy transition, the German Commission on “Growth, Structural Change and Employment” recommended a stepwise phase-out of coal-fired electricity generation until 2038 and a partly substitution by gas-fired power plants. In this context local externalities of various types of fossil fuel-fired power plants are investigated and quantified using the life satisfaction approach. Therefore, representative panel data on individual life satisfaction of 61,822 German residents from 1994 to 2016 is analyzed on postcode level with a fixed effects regression model. This work finds type-specific positive spillover effects of natural gas and lignite power plants in adjacent post code areas. External effects of hard coal-fired power plants cannot be evidenced. These results suggest future hedonic-pricing studies to consider spillover effects. Including interviewer fixed effects in the regression reveals the necessity to account for interviewer influences in life satisfaction studies with spatial reference, especially in cases of non-random assignment of interviewers.
    Keywords: Life Satisfaction, Subjective Well-Being, Fossil Fuel Power Station, Externalities, Fixed Effects, SOEP
    JEL: C23 D62 Q48 Q51
    Date: 2019
  7. By: Lin, Chen (The University of Hong Kong - Faculty of Business and Economics); Schmid, Thomas (The University of Hong Kong - Faculty of Business and Economics); Weisbach, Michael S. (Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI))
    Abstract: Extreme temperatures lead to large fluctuations in electricity demand and wholesale prices of electricity, which in turn affects the optimal production process for firms to use. Using a large international sample of planned power plant projects, we measure the way that electric utilities’ investment decisions depend on the frequency of extreme temperatures. We find that they invest more in regions with more extreme temperatures. These investments are mostly in flexible gas and oil-fired power plants that can easily adjust their output to improve their operating flexibility. Our results suggest that climate change is becoming a meaningful factor affecting firms’ behavior.
    JEL: G30 G31
    Date: 2019–10
  8. By: Vespignani, Joaquin L. (University of Tasmania); Raghavan, Mala (University of Tasmania); Majumder, Monoj Kumar (Sher-e-Bangla Agricultural University)
    Abstract: An important economic paradox that frequently arises in the economic literature is that countries with abundant natural resources are poor in terms of real gross domestic product per capita. This paradox, known as the “resource curse,” is contrary to the conventional intuition that natural resources help to improve economic growth and prosperity. Using panel data for 95 countries, this study revisits the resource curse paradox in terms of oil resource abundance for the period 1980–2017. In addition, the study examines the role of trade openness in influencing the relationship between oil abundance and economic growth. The study finds that trade openness is a possible avenue to reduce the resource curse. Trade openness allows countries to obtain competitive prices for their resources in the international market and access advanced technologies to extract resources more efficiently. Therefore, natural resource–rich economies can reduce the resource curse by opening themselves to international trade.
    Keywords: Oil rents; real GDP per capita; trade openness; dynamic panel data model
    JEL: E23 F13 Q43
    Date: 2019–10–01
  9. By: Mads Bruun Ingstrup; Max-Peter Menzel
    Abstract: When investigating the emergence of relatedness between two previously unrelated industries - the offshore oil and gas industry and the offshore wind energy industry in Esbjerg, Denmark, - we argue that relatedness is a system property, whose emergence should be visible via organizational search processes in the other industry. While network positions were important when companies began explorative searches in the other industry, regular search processes in the other industry coincided with the formation of new organizational arrangements. With these findings in mind, we propose that relatedness emerges when relationships between two industries are institutionalized.
    Keywords: relatedness, institutions, organizational search, emergence, offshore industries
    JEL: L14 L61 O33 R11
    Date: 2019–10
  10. By: Hamid Al Sadoon; Colin Ward; Jennifer Considine; Abdullah Aldayel (King Abdullah Petroleum Studies and Research Center)
    Abstract: The KAPSARC Oil Market Outlook (KOMO) has been designed to provide readers with a timely source of data, forecasts and analysis of world oil markets, including an understanding of the key factors affecting world oil prices. This paper gives a detailed description of the scope of KOMO, including the models and methodology used in the analysis.
    Keywords: Brent crude, Oil Market Forecasting, Oil demand, Oil price, Oil supply
    Date: 2019–10–20
  11. By: Han, Y.; Lam, J.; Guo, P.; Gou, Z.
    Abstract: China has drawn up ambitious plans in nuclear power development. After the Fukushima crisis, the HK public has expressed serious concerns about the nuclear power plants in the cross-border Guangdong region. We conducted a randomized survey of 1032 HK respondents to identify the key factors that predict HK Government’s trustworthiness (GT), with regard to nuclear safety emergency governance in a cross-border context. Our result shows that the perceived benefit of nuclear power is positively associated with GT, while risk perception about nuclear power technologies, expected engagement in emergency planning, and average monthly income are negatively associated with GT. We also find that knowledge about nuclear technology and safety has no effect on GT. This contradicts the common view that educating the public about nuclear safety and technology will increase public trust. Further, we find that HK respondents prefer engaging with local experts than international/Guangdong authorities. To build trust in NSEG, HK Government should direct attentions towards improving public understanding on the significance and contribution of nuclear power in overall electricity generation in HK, reducing public fears of nuclear power technologies, and ensuring appropriate level of engagement with HK stakeholders. Our proposed methodology can be transferrable to other domains and countries.
    Keywords: nuclear power, risk perception, government trustworthiness, nuclear safety governance, cross-border nuclear safety, Guangdong China, cross-border region
    JEL: D81 Q42 Q48
    Date: 2019–11–04
  12. By: Grossman, Valerie (Federal Reserve Bank of Dallas); Martínez-García, Enrique (Federal Reserve Bank of Dallas); Torres, Luis Bernardo (Texas A&M University); Sun, Yongzhi (Southwestern University of Finance and Economics)
    Abstract: This paper investigates the impact of oil price shocks on house prices in the largest urban centers in Texas. We model their dynamic relationship taking into account demand- and supply-side housing fundamentals (personal disposable income per capita, long-term interest rates and rural land prices) as well as their varying dependence on oil activity. We show the following: 1) Oil price shocks have limited pass-through to house prices—the highest pass-through is found among the most oil-dependent cities where, after 20 quarters, the cumulative response of house prices is 21 percent of the cumulative effect on oil prices. Still, among less oil-dependent urban areas, the house price response to a one standard deviation oil price shock is economically significant and comparable in magnitude to the response to a one standard deviation income shock. 2) Omitting oil prices when looking at housing markets in oil-producing areas biases empirical inferences by substantially overestimating the effect of income shocks on house prices. 3) The empirical relationship linking oil price fluctuations to house prices has remained largely stable over time, in spite of the significant changes in Texas’ oil sector with the onset of the shale revolution in the 2000s.
    Keywords: real house prices; real rural land prices; panel VAR model with exogenous variables; real oil price shocks; (non-oil) real income shocks
    JEL: C33 O18 Q43 R14 R3
    Date: 2019–09–15
  13. By: Opeyemi Akinyemi (CEPDeR, Covenant University, Ota, Nigeria); Uchenna R. Efobi (CEPDeR, Covenant University, Ota, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon); Evans S. Osabuohien (CEPDeR, Covenant University, Ota, Nigeria)
    Abstract: The paper investigates the dynamic relationship between renewable energy usage and trade performance in sub-Saharan Africa (SSA), while considering the conditioning role of corruption control, regulatory quality, and the private sector access to finance. Focusing on 42 SSA countries for the period 2004-2016, and engaging the System generalized method of moments (GMM) technique for its estimation, this study found a negative relationship between renewable energy usage and the indicators of trade performance. However, with corruption control, improved regulatory framework, and better finance for the private sector, there are potentials for a positive net impact of renewable energy usage on manufacturing export. For renewable energy and total trade nexus, we find that improved regulatory framework and better finance for the private sector are important conditioning structures. These findings are significant because they highlight the different important structures of SSA countries that improve the effect of renewable energy use on trade outcomes. For instance, the consideration of the financial, institutional and regulatory frameworks in SSA countries in conditioning the renewable energy-trade nexus stipulates a clear policy pathway for countries in this region as the debate for transition to the use of renewable energy progresses.
    Keywords: Environment; Green growth; Trade performance; Pollution; Renewable energy; sub-Saharan Africa
    JEL: C5 F1 Q4 Q5
    Date: 2019–01
  14. By: David BENATIA (CREST (UMR 9194), ENSAE, Institut Polytechnique de Paris.); Etienne BILLETTE de VILLEMEUR (LEM-CNRS (UMR 9221), Université de Lille.)
    Abstract: This paper investigates the incentives to manipulate sequential markets by strategically reneging on forward commitments. We first study the behavior of a monopolist in a two-period model with demand uncertainty. Our results deliver guidance for identifying manipulations and evaluating its market impacts. We then test the model's predictions using occurrences of reneging on long-term commitments in Alberta's electricity market. We implement a machine learning approach to identify and evaluate manipulations. We find that a dominant supplier increased its revenues by $35 million during the winter of 2010-11, causing Alberta's electricity procurement costs to increase by above $330 million (20%).
    Keywords: Imperfect Commitment, Market Manipulation, Market Power, Electricity Markets.
    JEL: D43 L12 L51 L94
    Date: 2019–10–11
  15. By: Kilian, Lutz (Federal Reserve Bank of Dallas); Zhou, Xiaoqing (Federal Reserve Bank of Dallas)
    Abstract: Shocks to the demand for housing that originate in one region may seem important only for that regional housing market. We provide evidence that such shocks can also affect housing markets in other regions. Our analysis focuses on the response of Canadian housing markets to oil price shocks. Oil price shocks constitute an important source of exogenous regional variation in income in Canada because oil production is highly geographically concentrated. We document that, at the national level, real oil price shocks account for 11% of the variability in real house price growth over time. At the regional level, we find that unexpected increases in the real price of oil raise housing demand and real house prices not only in oil-producing regions, but also in other regions. We develop a theoretical model of the propagation of real oil price shocks across regions that helps understand this finding. The model differentiates between oil-producing and non-oil-producing regions and incorporates multiple sectors, trade between provinces, government redistribution, and consumer spending on fuel. We empirically confirm the model prediction that oil price shocks are propagated to housing markets in non-oil-producing regions by the government redistribution of oil revenue and by increased interprovincial trade.
    Keywords: House price; regional heterogeneity; oil price; redistribution; resource boom; regional propagation; Canada
    JEL: F43 Q33 Q43 R12 R31
    Date: 2019–09–04
  16. By: Severen, Christopher (Federal Reserve Bank of Philadelphia); van Benthem, Arthur (Wharton)
    Abstract: An individual’s initial experiences with a common good, such as gasoline, can shape their behavior for decades. We first show that the 1979 oil crisis had a persistent neg-ative effect on the likelihood that individuals that came of driving age during this time drove to work in the year 2000 (i.e., in their mid 30s). The effect is stronger for those with lower incomes and those in cities. Combining data on many cohorts, we then show that large increases in gasoline prices between the ages of 15 and 18 sig-nificantly reduce both (i) the likelihood of driving a private automobile to work and (ii) total annual vehicle miles traveled later in life, while also increasing public tran-sit use. Differences in driver license age requirements generate additional variation in the formative window. These effects cannot be explained by contemporaneous in-come and do not appear to be only due to increased costs from delayed driving skill acquisition. Instead, they seem to reflect the formation of preferences for driving or persistent changes in the perceived costs of driving.
    Keywords: formative experiences; preference persistence; path dependence; driving behavior; gasoline price
    JEL: D12 D90 L91 Q41 R41
    Date: 2019–09–18
  17. By: Neuhoff, K.; Ritz, R.
    Abstract: To achieve the ambitions of the 2015 Paris Climate Agreement, the decarbonization of energy-intensive industrial sectors is becoming increasingly important. This paper focuses on the economics of carbon cost pass-through: the change in product prices induced by carbon pricing. We provide a theoretical framework to understand pass-through at the sectoral level and a constructive review of the empirical evidence from the EU ETS and other jurisdictions. Our analysis is structured around three key drivers: international trade, market structure, and free allowance allocation. We provide a synthesis of our key findings for policymakers and identify gaps in the literature for future research.
    Keywords: Carbon pricing, cost pass-through, free allocation, full carbon price internalization, international trade, market structure
    JEL: L11 L70 Q54 Q58
    Date: 2019–10–31
  18. By: Shaheen, Susan PhD; Cohen, Adam; Farrar, Emily
    Abstract: Carsharing provides members access to a fleet of autos for short-term use throughout the day, reducing the need for one or more personal vehicles. This chapter reviews key terms and definitions for carsharing, common carsharing business models, and existing impact studies. Next, the chapter discusses the commodification and aggregation of mobility services and the role of Mobility on Demand (MOD) and Mobility as a Service (MaaS) on carsharing. Finally, the chapter concludes with a discussion of how the convergence of electrification and automation is changing carsharing, leading to shared automated and electric vehicle (SAEV) fleets.
    Keywords: Engineering, Carsharing, Shared mobility, Mobility on Demand (MOD), Mobility as a Service (MaaS), Shared automated electric vehicles (SAEVs)
    Date: 2019–10–23
  19. By: Christoph Böhringer; Knut Einar Rosendahl; Halvor Briseid Storrøsten
    Abstract: Policy makers in the EU and elsewhere are concerned that unilateral carbon pricing induces carbon leakage through relocation of emission-intensive and trade-exposed industries to other regions. A common measure to mitigate such leakage is to combine an emission trading system (ETS) with output-based allocation (OBA) of allowances to exposed industries. We first show analytically that in a situation with an ETS combined with OBA, it is optimal to impose a consumption tax on the goods that are entitled to OBA, where the tax is equivalent in value to the OBA-rate. Then, using a multi-region, multi-sector computable general equilibrium (CGE) model calibrated to empirical data, we quantify the welfare gains for the EU to impose such a consumption tax on top of its existing ETS with OBA. We run Monte Carlo simulations to account for uncertain leakage exposure of goods entitled to OBA. The consumption tax increases welfare whether the goods are highly exposed to leakage or not, and can hence be regarded as smart hedging against carbon leakage.
    Keywords: carbon leakage, output-based allocation, consumption tax
    JEL: D61 F18 H23 Q54
    Date: 2019
  20. By: Kilian, Lutz (Federal Reserve Bank of Dallas)
    Abstract: Baumeister and Hamilton (2019a) assert that every critique of their work on oil markets by Kilian and Zhou (2019a) is without merit. In addition, they make the case that key aspects of the economic and econometric analysis in the widely used oil market model of Kilian and Murphy (2014) and its precursors are incorrect. Their critiques are also directed at other researchers who have worked in this area and, more generally, extend to research using structural VAR models outside of energy economics. The purpose of this paper is to help the reader understand what the real issues are in this debate. The focus is not only on correcting important misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.
    Keywords: Oil supply elasticity; oil demand elasticity; IV estimation; structural VAR; Bayesian inference; oil price; global real activity
    JEL: C36 C52 Q41 Q43
    Date: 2019–09–06
  21. By: Clive L. Spash
    Abstract: This paper explores core failures of environmental economics as a scientific attempt to understand the ecological crises. The case of environmental pollution is used to show how neoclassical externality theory evolved to establish commitment to, and dogmatic support for, an elitist ethics and liberal market ideology. The public policy response to pollution then recommended is to internalise externalities by correcting market prices based on monetary valuation of the social costs (i.e., damages). Pollution as a market failure is deemed a correctible error of the price system. This is contrast with an alternative theory of pollution based on a classic institutional economic theory of cost-shifting that instead requires a public policy response involving regulation and planning. Reflection on the history of thought related to these two theories of pollution reveals how environmental economics became a marginalised field supporting the neoclassical economic orthodoxy with full commitment to its core paradigms. Why the critical and realist institutional approach had to be suppressed is explained as denying the potential for a revolutionary paradigm shift in economic price theory.
    Keywords: Environmental economics; externalities; cost-shifting; price theory; pollution; Arthur C Pigou; K William Kapp; paradigm shift; neoclassical economics; orthodoxy; institutional economics
    JEL: Q5 D62
    Date: 2019
  22. By: Lutz Kilian
    Abstract: Baumeister and Hamilton (2019a) assert that every critique of their work on oil markets by Kilian and Zhou (2019a) is without merit. In addition, they make the case that key aspects of the economic and econometric analysis in the widely used oil market model of Kilian and Murphy (2014) and its precursors are incorrect. Their critiques are also directed at other researchers who have worked in this area and, more generally, extend to research using structural VAR models outside of energy economics. The purpose of this paper is to help the reader understand what the real issues are in this debate. The focus is not only on correcting important misunderstandings in the recent literature, but on the substantive and methodological insights generated by this exchange, which are of broader interest to applied researchers.
    Keywords: oil supply elasticity, oil demand elasticity, IV estimation, structural VAR, Bayesian inference, oil price, global real activity
    JEL: Q43 Q41 C36 C52
    Date: 2019
  23. By: Degiannakis, Stavros; Filis, George; Arora, Vipin
    Abstract: Do oil prices and stock markets move in tandem or in opposite directions? The complex and time varying relationship between oil prices and stock markets has caught the attention of the financial press, investors, policymakers, researchers, and the general public in recent years. In light of such attention, this paper reviews research on the oil price and stock market relationship. The majority of papers we survey study the impacts of oil markets on stock markets, whereas, little research in the reverse direction exists. Our review finds that the causal effects between oil and stock markets depend heavily on whether research is performed using aggregate stock market indices, sectorial indices, or firm-level data and whether stock markets operate in net oil-importing or net oil-exporting countries. Additionally, conclusions vary depending on whether studies use symmetric or asymmetric changes in the price of oil, or whether they focus on unexpected changes in oil prices. Finally, we find that most studies show oil price volatility transmits to stock market volatility, and that including measures of stock market performance improves forecasts of oil prices and oil price volatility. Several important avenues for further research are identified.
    Keywords: Oil prices, oil price volatility, stock markets, interconnectedness, forecasting, oil-importers, oil-exporters.
    JEL: G15 Q40 Q47
    Date: 2018
  24. By: Akintoye V. Adejumo (Obafemi Awolowo University, Ile-Ife, Nigeria); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Globally, investments in physical and human capital have been identified to foster real economic growth and development in any economy. Investments, which could be domestic or foreign, have been established in the literature as either complements or substitutes in varying scenarios. While domestic investments bring about endogenous growth processes, foreign investment, though may be exogenous to growth, has been identified to bring about productivity and ecological spillovers. In view of these competing–conflicting perspectives, this chapter examines the differential impacts of domestic and foreign investments on green growth in Nigeria during the period 1970-2017. The empirical evidence is based on Auto-regressive Distributed Lag (ARDL) and Granger causality estimates. Also, the study articulates the prospects for growth sustainability via domestic or foreign investments in Nigeria. The results show that domestic investment increases CO2 emissions in the short run while foreign investment decreases CO2 emissions in the long run. When the dataset is decomposed into three sub-samples in the light of cycles of investments within the trend analysis, findings of the third sub-sample (i.e. 2001-2017) reveal that both types of investments decrease CO2 emissions in the long run while only domestic investment has a negative effect on CO2 emissions in the short run. This study therefore concludes that as short-run distortions even out in the long-run, FDI and domestic investments has prospects for sustainable development in Nigeria through green growth.
    Keywords: Investments; Productivity; Sustainability; Growth
    JEL: E23 F21 F30 O16 O55
    Date: 2019–01
  25. By: Zhou, Xiaoqing (Federal Reserve Bank of Dallas)
    Abstract: The Kilian and Murphy (2014) structural vector autoregressive model has become the workhorse model for the analysis of oil markets. I explore various refinements and extensions of this model, including the effects of (1) correcting an error in the measure of global real economic activity, (2) explicitly incorporating narrative sign restrictions into the estimation, (3) relaxing the upper bound on the impact price elasticity of oil supply, (4) evaluating the implied posterior distribution of the structural models, and (5) extending the sample. I demonstrate that the substantive conclusions of Kilian and Murphy (2014) are largely unaffected by these changes.
    Keywords: Oil market; global real activity; structural VAR; narrative sign restrictions; identification; Bayesian inference
    JEL: C32 C52 Q41 Q43
    Date: 2019–09–06
  26. By: Schilirò, Daniele
    Abstract: Sustainability has become the emerging goal for countries, companies, and people. Sustainability usually refers to the need to develop models necessary for both human beings and our planet to survive. However, sustainability is not a short-term problem; it is above all a long-term issue, posing intergenerational equity problems. Moreover, sustainability needs efficiency. The efficient use of energy, natural, material, and informational resources is vital for sustainability and sustainable development, which should be the major goal of every country, as established in Rio in 1992, and reaffirmed at Rio+ 20 in 2012. But any strategy aiming at sustainability and efficient use of resources must focus on innovation and technological progress. Consequently, innovation is fundamental to making sustainability possible and improving efficiency. Yet, innovation for sustainability must be environmentally friendly (e.g., green technologies). The principle behind such a strategy is better instead of more. This paper aims at highlighting the key relationship among sustainability, innovation, and efficiency. First, it examines the concept of sustainability, looking at the neoclassical literature on sustainability and its relationship with innovation. Then, it analyzes different theoretical approaches and discusses the policy issues for sustainability where innovation, natural capital, human capital, population, and institutions are fundamental factors.
    Keywords: Sustainability; Innovation; Efficiency; Sustainable Development Goals; Sustainable Development Policies
    JEL: Q32 Q38 Q50 Q55 Q56
    Date: 2019–03
  27. By: Opeyemi Akinyemi (CEPDeR, Covenant University, Ota, Nigeria); Uchenna Efobi (CEPDeR, Covenant University, Ota, Nigeria); Evans Osabuohien (CEPDeR, Covenant University, Ota, Nigeria); Philip Alege (CEPDeR, Covenant University, Ota, Nigeria)
    Abstract: This study explores the extent to which regional integration can be a viable tool in driving energy sustainability in the Economic Community of West African States (ECOWAS) sub-region of Africa, and vice versa. It examines the existing opportunities and the attendant challenges for improved firms’ productivity in the sub-region through the appraisal of the ECOWAS West African Power Pool (WAPP). Using three measures of energy sustainability, namely: energy security, energy equity, and environmental sustainability; the study presents the performance of the ECOWAS sub-region in ensuring regional integration for energy sustainability. The findings from the study reveal, inter alia, that there are prospects and benefits for energy integration for sustainable development in the region. Though some progress had been made, there are many challenges. Also, where progress had been made, it is not uniform across the sub-region, though factors such as rising population and political instability could be responsible. It is recommended that the political economy surrounding regional energy integration should be given a priority among the Member States to ensure that there is positive political will for speedy achievement of set goals. Also, investment in human capital to manage the different projects and maintain the facilities cannot be overemphasised.
    Keywords: ECOWAS, Energy, Green growth, Sustainable development, Regional Integration
    JEL: F15 P28 Q43 R11 R58
    Date: 2019–01
  28. By: Ahmed, Rashad
    Abstract: I investigate the link between economic fundamentals and exchange rate adjustment to commodity price fluctuations. I overcome the traditional issue of simultaneity by exploiting the September 14, 2019 drone attack on two Saudi Arabian refineries as a natural experiment. This unanticipated event caused the largest 1-day global crude oil price spike in over a decade. Using high-frequency exchange rate data for 30 countries, I measure each currency’s return around the event window, and link currency return heterogeneity to country-level economic and monetary fundamentals. Crude export and import intensities were associated with appreciation (depreciation). In addition, countries with current account surpluses, as opposed to deficits, and greater international reserves saw more currency appreciation, thereby buffering the depreciating effects on crude oil importers. Countries with higher policy interest rates, consisting of mostly Emerging Market economies, experienced greater depreciation conditional on crude oil export/import exposure.
    Keywords: Commodity, exchange rates, oil price, terms of trade
    JEL: E44 F3 F31 Q43
    Date: 2019–10–10
  29. By: Abootaleb Shirvani; Dimitri Volchenkov
    Abstract: We demonstrate that the tail dependence should always be taken into account as a proxy for systematic risk of loss for investments. We provide the clear statistical evidence of that the structure of investment portfolios on a regulated market should be adjusted to the price of gold. Our finding suggests that the active bartering of oil for goods would prevent collapsing the national market facing international sanctions.
    Date: 2019–11
  30. By: Curtis, John; Tovar, Miguel Angel; Grilli, Gianluca
    Date: 2019
  31. By: Zhu, Tong; Curtis, John; Clancy, Matthew
    Date: 2019

This nep-ene issue is ©2019 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.