nep-ene New Economics Papers
on Energy Economics
Issue of 2020‒06‒29
fifty-one papers chosen by
Roger Fouquet
London School of Economics

  1. On Green Growth with Sustainable Capital By Basu, P.; Jamasb, T.
  2. Understanding Consumer Vehicle Choice: A New Car Fleet Model for France By ITF
  3. An Experimental Comparison of Carbon Pricing Under Uncertainty in Electricity Markets By Trevor L. Davis; Mark C. Thurber; Frank A. Wolak
  4. Power Trades and Network Congestion Externalities By Nayara Aguiar; Indraneel Chakraborty; Vijay Gupta
  5. The lockdown associated with COVID-19 caused a sizeable downward shock to electricity demand in the Philippines. Although coal is usually classified as a “baseload†fuel, it ironically bore the brunt of adjustment in the generation mix. The resulting upward pressure on retail prices was offset by force majeure contract provisions that allowed distribution utilities to pay lower fixed charges on their power purchase agreements. Coal generators thus suffered the double whammy of lower sales at lower rates. While existing coal plants will contribute to affordability during the recovery, plants in the planning stage may be reevaluated in light of the falling cost of wind and solar power and the low costs of dealing with intermittency when the percentage of intermittent generation is low. The Department of Energy’s “technology neutral†policy towards the generation mix is sound so long as least cost is interpreted to include the social costs of pollution. Some changes in renewable energy policy are indicated. By Majah-Leah V. Ravago; James A. Roumasset
  6. Internationaler Handel, Klimapolitik und Carbon Leakage By Stefan Borsky
  7. Refunded emission payments scheme – a cost-efficient and politically acceptable instrument for reduction of NOx-emissions? By Heimvik, Arild
  8. CO2 emissions of the construction sector in Spain during the real estate boom: input–output subsystem analysis and decomposition. By Vicent Alcántara Escolano; Emilio Padilla Rosa
  9. Do British wind generators behave strategically in response to the Western Link interconnector? By Intini, Mario; Waterson, Michael
  10. The energy distance for ensemble and scenario reduction By Florian Ziel
  11. Electrification and Socio-Economic Empowerment of Women in India By Sedai, A K.; Nepal, R.; Jamasb, T.
  12. Carbon Premium around the World By Bolton, Patrick; Kacperczyk, Marcin
  13. Relationship between crude oil prices and global sukuk (islamic bond) index: evidence from Dow Jones Citygroup sukuk index By Hassan, Fatimatul; Masih, Mansur
  14. Using Carbon Revenues By Oskar LECUYER; Sébastien POSTIC (I4CE)
  15. Energy contagion in the COVID-19 crisis By Reinhold Heinlein; Gabriella D. Legrenzi; Scott M. R. Mahadeo
  16. Energy Markets and Global Economic Conditions By Baumeister, Christiane; Korobilis, Dimitris; Lee, Thomas K.
  17. How much Polish consumers know about alternative fuel vehicles? By Anna Kowalska-Pyzalska; Marek Kott; Joanna Kott
  18. Assessing the Impacts of Vehicle Emissions and Safety Regulations By Bert van Wee
  19. What effect has the 2015 power market reform had on power prices in China? Evidence from Guangdong and Zhejiang By Xie, B-C.; Xu, J.; Pollitt, M.
  20. The Environmental Benefits from Transportation Electrification: Urban Buses By Stephen P. Holland; Erin T. Mansur; Nicholas Z. Muller; Andrew J. Yates
  21. Is the NEM broken? Policy discontinuity and the 2017-2020 investment megacycle By Simshauser, P.; Gilmore, J.
  22. Air Pollution Exposure and COVID-19 By Cole, Matthew A.; Ozgen, Ceren; Strobl, Eric
  23. Merchant utilities and boundaries of the firm: vertical integration in energy-only markets By Simshauser, P.
  24. What does the power outage on 9 August 2019 tell us about GB power system By Bialek, J.
  25. Willingness to Pay for Better Air Quality: The case of China By Liu, L-Q.; Yin, Z-L.; Xie, B-C.; Zhou, W.
  26. Do Investors Care about Carbon Risk? By Bolton, Patrick; Kacperczyk, Marcin
  27. Sharing the Global Benefits of Finite Natural Resource Exploitation: A Dynamic Coalitional Stability Perspective By Stéphane Gonzalez; Fatma Rostom
  28. The cost of CO2 abatement from Britain’s only PWR: Sizewell B By Newbery, D.
  29. The Direct Rebound Effect of Electricity Energy Services in Spanish Households: Evidence from Error Correction Model and System GMM estimates. By Martín Bordon Lesme; Jaume Freire-González; Emilio Padilla Rosa
  30. Enforcing Climate Agreements: The Role of Escalating Border Carbon Adjustments By Noha Elboghdadly; Michael Finus
  31. Pricing Energy Contracts under Regime Switching Time-Changed models By Konrad Gajewski; Sebastian Ferrando; Pablo Olivares
  32. The Price Impact of Energy Vouchers By Marion Podesta; Jean-Christophe Poudou; Michel Roland
  33. Geographic environmental Kuznets curves: the optimal growth linear-quadratic case By Raouf Boucekkine; Giorgio Fabbri; Salvatore Federico; Fausto Gozzi
  34. Putting the Current Oil Price Collapse into Historical Perspective By Jan J. J. Groen; Michael Nattinger
  35. Do sound infrastructure governance and regulation affect productivity growth? New insights from firm level data By Lilas Demmou; Guido Franco
  36. Assessing the Role of Institutions in Limiting the Environmental Externalities of Economic Growth By Stéphane Dees
  37. Challenges of decentralized electrification for economic development: lessons from experience By Jean-Claude Berthélemy
  38. The CMA’s assessment of customer detriment in the UK retail energy market By Littlechild, S.
  39. Simplified Electricity Market Models with Significant Intermittent Renewable Capacity: Evidence from Italy By Christoph Graf; Federico Quaglia; Frank A. Wolak
  40. Do Islamic stocks and commodity markets comove at different investment horizons ? evidence from wavelet time-frequency approach By Khan, Aftab; Masih, Mansur
  41. Cooking Fuel Choice, Indoor Air Quality and Child Mortality in India By Basu, Arnab K.; Byambasuren, Tsenguunjav; Chau, Nancy H.; Khanna, Neha
  42. A Finance Approach to Climate Stress Testing By Reinders, Henk Jan; Schoenmaker, Dirk; Van Dijk, Mathijs A
  43. Oil price assumptions for macroeconomic policy By Degiannakis, Stavros; Filis, George
  44. Do Environmental Markets Cause Environmental Injustice? Evidence from California’s Carbon Market By Danae Hernandez-Cortes; Kyle C. Meng
  45. Border Carbon Adjustments and Industrial Competitiveness in a European Green Deal By Evans, S.; Mehling, M.; Ritz, R.; Sammon, P.
  46. How to Spend it: A Proposal for a European Covid-19 Recovery Programme By Jérôme Creel; Mario Holzner; Francesco Saraceno; Andrew Watt; Jérôme Wittwer
  47. The Effect of Finance on Inequality in Sub-Saharan Africa: Avoidable CO2 emissions Thresholds By Simplice A. Asongu; Xuan V. Vo
  48. Mapping fuel poverty risk at the municipal level: A Small-Scale Analysis of Italian Energy Performance Certificate, Census and Survey data By Riccardo Camboni; Alberto Corsini; Raffaele Miniaci; Paola Valbonesi
  49. Human macroecology, energy use scaling, and the sustainability of cities: A look at Latin America By Weinberger, Vanessa; Burger, Joseph Robert
  50. The economic impact of climate in the long run By Richard S.J. Tol
  51. What We Know and Don't Know about Climate Change, and Implications for Policy By Robert S. Pindyck

  1. By: Basu, P.; Jamasb, T.
    Abstract: We develop an endogenous growth model to address a long standing question whether sustainable green growth is feasible by re-allocating resource use between green (natural) and man-made (carbon intensive) capital. Although the model is general we relate it to the UK’s green growth policy objective. In our model, final output is produced with two reproducible inputs, green and man-made capital. The growth of man-made capital causes depreciation of green capital via carbon emissions and related externalities which the private sector does not internalize. A benevolent government uses carbon taxes to encourage firms to substitute man-made capital with green capital in so far the production technology allows. Doing so, the damage to natural capital by emissions can be partly reversed through a lower socially optimal long run growth. The trade-off between environmental quality and long-run growth can be overcome by a pollution abatement technology intervention. However, if the source of pollution is consumption, the optimal carbon tax is zero and there is no trade-off between environment policy and growth. A corrective consumption tax is then needed to finance a public investment programme for replenishing the green capital destroyed by consumption based emissions.
    Keywords: Green growth, sustainability, carbon tax, clean growth, resource substitution
    JEL: E1 O3 O4 Q2
    Date: 2020–05–21
  2. By: ITF
    Abstract: This report presents a model that helps to better understand how consumers in France choose their cars. It presents the results for different scenarios for the future development of the French vehicle fleet and projections for related CO2 emissions to 2050. The model distinguishes conventional, plug-in hybrid, battery-electric and fuel cell cars. It looks at the privately-owned as well as company car fleets and considers non-monetary factors for vehicle choice. Among these are personal preferences, the availability of recharging infrastructure for electric vehicles, and policy incentives such as subsidies or preferential vehicle use rights. The methodology and the data used for this new passenger car fleet model are described in detail.
    Date: 2019–11–04
  3. By: Trevor L. Davis; Mark C. Thurber; Frank A. Wolak
    Abstract: We report on an economic experiment that compares outcomes in electricity mar- kets subject to carbon-tax and cap-and-trade policies. Under conditions of uncertainty, price-based and quantity-based policy instruments cannot be truly equivalent, so we compared three matched carbon-tax/cap-and-trade pairs with equivalent emissions tar- gets, mean emissions, and mean carbon prices, respectively. Across these matched pairs, the cap-and-trade mechanism produced much higher wholesale electricity prices (38.5% to 52.6% higher) and lower total electricity production (2.5% to 4.0% lower) than the “equivalent” carbon tax, without any lower carbon emissions. Market participants who forecast a lower price of carbon in the cap-and-trade games ran their units more than those who forecast a higher price of carbon, which caused emissions from the dirtiest generating units (Coal and Gas Peakers) to be significantly higher (15.2% to 33.0%) than in the carbon tax games. These merit order “mistakes” in the cap-and-trade games suggest an important advantage of the carbon tax as policy: namely, that the cost of carbon can treated by firms as a known input to production.
    JEL: Q4 Q52 Q54
    Date: 2020–05
  4. By: Nayara Aguiar; Indraneel Chakraborty; Vijay Gupta
    Abstract: As power generation by renewable sources increases, power transmission patterns over the electric grid change. We show that due to physical laws, these new transmission patterns lead to non-intuitive grid congestion externalities. We derive the conditions under which network externalities due to power trades occur. Calibration shows that each additional unit of power traded between northern and western Europe reduces transmission capacity for the southern and eastern regions by 27% per unit traded. Given such externalities, new investments in the electric grid infrastructure cannot be made piecemeal. Power transit fares can help finance investment in regions facing network congestion externalities.
    Date: 2020–05
  5. By: Majah-Leah V. Ravago (Economics Department, Ateneo de Manila University); James A. Roumasset (Economics Department and UHERO, University of Hawaii)
    Keywords: COVID-19, Electricity industry, Energy transition, Philippines
    JEL: Q4 Q2 O1
    Date: 2020–06
  6. By: Stefan Borsky
    Abstract: Mit dem Klimaabkommen von Paris hat sich eine Situation der national differenzierten Klimapolitik entwickelt, die zu ungleichen CO2-Preisen in den einzelnen Ländern geführt hat. Internationaler Handel zwischen Ländern mit unterschiedlich strikter Klimaschutzpolitik kann zu Carbon Leakage führen. Dies reduziert die Effizienz einer Klimaschutzpolitik. Ein Grenzausgleich, im Sinne einer Harmonisierung unterschiedlicher CO2-Preise mit Hilfe von CO2-Zöllen, bietet sich als eine Maßnahme an, um Wettbewerbsverzerrung aufgrund von unilateraler Klimaschutzpolitik zu reduzieren und Carbon Leakage zu verhindern. Nicht nur in der Fachliteratur, sondern auch auf politischer Ebene findet die Idee eines Grenzausgleiches Zustimmung. Der jüngste Vorschlag einer solchen Maßnahme wurde im Zuge des von der Europäischen Kommission unter Ursula von der Leyen beschlossenen „Green Deals“ benannt und soll helfen die Europäische Union bis zum Jahr 2050 zur Klima-Neutralität zu führen. Obwohl die Grundidee von Grenzausgleichsmaßnahmen im Sinne einer Verlagerung zu einer konsumbasierten CO2-Bepreisung reizvoll und klar ist, ist dessen Ausgestaltung und Implementierung in der Praxis komplex. Dies führt zu einem hohen bürokratischen Mehraufwand und damit einhergehenden hohen administrativen Kosten. Darüber hinaus kann ein Grenzausgleich als Handelsbarriere gesehen werden, welche zu Vergeltungsmaßnahmen der vom Grenzausgleich betroffenen Länder im Ausland führen kann. Aus diesem Grund empfiehlt sich ein enger Fokus auf energieintensive und international exponierte Sektoren.
    Date: 2020–05
  7. By: Heimvik, Arild (University of Bergen, Department of Economics)
    Abstract: The paper studies the effectiveness of a refunded emission payments (REP) scheme in achieving a specific target path of NOx-emission reductions. A REP scheme levies a charge on emissions and refunds the collected funds back to the emitting firms. REP schemes have been highlighted as a remedy to some concerns about standard emission taxes. The purpose of a REP scheme, however, is to achieve effective emission reductions. We examine two REP designs in this paper and analyze their incentives for emission mitigation at the firm level, with heterogenous firms. In the first design, refunds are given to firms based on their emission cuts. The second design gives refunds based on output shares of the emitting firms. Results show that while both designs can achieve the specific target path, only refunding based on emission-reductions is cost-efficient. The two designs target different objectives and hence, provide different mitigation incentives, and result in different distributional outcomes. On the other hand, neither design raises governmental revenue, nor do they strictly adhere to the polluter-pays-principle. However, a REP scheme has qualities that should make it appealing to regulators, especially if an effective emission tax is unfeasible.
    Keywords: Refunded emission payments; NOx emissions; environmental policy
    JEL: C61 Q48 Q52 Q53
    Date: 2020–04–02
  8. By: Vicent Alcántara Escolano (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Emilio Padilla Rosa (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: The construction sector has a special interest in the case of the Spanish economy, given its large economic dimension and environmental impact, particularly during the real estate boom prior to the last economic crisis that started in 2008. We study the CO2 emissions of construction activities in 2007, at the height of the construction boom, in the context of the productive structure of Spain. For this, we use an input–output subsystem method, which allows us to study the productive structure of the subsystem’s activities, taking into account its links with the rest of the sectors. The decomposition of total emissions in four explanatory components allows us to make a classification of the different sectors according to the type of relationships that are established between the subsystem and the rest of the economy. We derive some implications for environmental policy from the analysis of these interrelations
    Keywords: CO2 emissions; construction sector; input–output subsystem; productive structure; real estate boom.
    JEL: C67 L74 Q54
    Date: 2020–06
  9. By: Intini, Mario (University of Bari Aldo Moro); Waterson, Michael (University of Warwick)
    Abstract: In Britain, the key source of renewable generation is wind, most abundant on the west coast of Scotland, where there is relatively little demand. For this reason, an interconnector, the Western Link, was built to take electricity closer to demand. When the Link is operating, payments by National Grid to constrain wind farms not to produce will be lower, we may predict, since fewer or less restrictive constraints need be imposed. But the Link has not been working consistently. We empirically estimate the link’s value. Focusing on the three most recent episodes of outage, starting on 4th May 2018 up to 25th September 2019, our essential approach is to treat these outages as a natural experiment using hourly data. Our results reveal that the Link had an important role in costs saved and price constrained and MWh curtailed reductions. We estimate a cost-saving of almost £30m. However, the saving appears to drop over time, so we investigate wind farms’ behavior. We find that wind farms behave strategically since the accuracy of wind forecasting depends on the relevant prices impacting their earnings
    Keywords: Interconnector, Electricity Market, Wind forecasting, Wind Generators, Pricing Strategies JEL Classification: D22 ; D47 ; H54 ; L22 ; Q41 ; Q47
    Date: 2020
  10. By: Florian Ziel
    Abstract: Scenario reduction techniques are widely applied for solving sophisticated dynamic and stochastic programs, especially in energy and power systems. We propose a new method for ensemble and discrete scenario reduction based on the energy distance which is a special case of the maximum mean discrepancy (MMD). We discuss the choice of energy distance in detail, especially in comparison to the popular Wasserstein distance which is dominating the scenario reduction literature. The energy distance is a metric between probability measures which allows for powerful tests for equality of arbitrary multivariate distributions or independence. Thanks to the latter, it to a suitable candidate for ensemble and scenario reduction problems. The theoretical properties and considered examples indicate clearly that the reduced scenario set tend exhibit better statistical properties for energy distance than a corresponding reduction with respect to the Wasserstein distance. We show applications to binary trees and a real data based examples for electricity demand profiles.
    Date: 2020–05
  11. By: Sedai, A K.; Nepal, R.; Jamasb, T.
    Abstract: This study examines the effect of quality of electrification on empowerment of women in terms of economic autonomy, agency, mobility, decision-making abilities, and time allocation in fuel collection in India. It moves beyond the consensus of counting electried households as a measure of progress in gender parity, and analyzes how the quality of electrification affects women's intra-household bargaining power, labor supply decision and fuel collection time. We develop a set of indices using principal component analysis from a large cross-section of gender-disaggregated survey. We use two stage least squares instrumental variables regression to assess the causal effect of access and hours of electricity on women's empowerment using geographic instrumental variables along with district and caste fixed effects. The results show that quality of electrication has significant positive effects on all empowerment indices. However, the effect differs at the margin of defficiency, location, living standards and education. The study recommends revisiting the paradigm of access to electrification and women empowerment by focusing on the quality of not only extensive but also intensive electrification to enhance life and economic opportunities for women and their households.
    Keywords: Electrification and Socio-Economic Empowerment of Women in India
    JEL: D13 D63 H42 Q43
    Date: 2020–05–15
  12. By: Bolton, Patrick; Kacperczyk, Marcin
    Abstract: This paper explores how the carbon premium varies around the world. We estimate the stock return premium associated with carbon emissions at the firm level in a cross-section of over 14,400 firms in 77 countries. We find that there is a widespread carbon premium-higher stock returns for companies with higher carbon emissions-in all sectors over three continents, Asia, Europe, and North America. Stock returns are affected by both direct and indirect emissions through the supply chain. In addition, the carbon premium has been rising in recent years. We also find widespread divestment based on carbon emissions by institutional investors around the world, but institutional investors tend to focus their divestment on foreign companies.
    JEL: D62 G12 G23 G30
    Date: 2020–04
  13. By: Hassan, Fatimatul; Masih, Mansur
    Abstract: The global Islamic bond started gaining attention in capital markets just a few years ago. Since the launch of Dow Jones Citygroup Sukuk Index in 2006 , the number of issuance of global Islamic bonds has been sharply increasing. Saudi Arabia, UAE and Qatar had become major issuers of global bonds which are highly demanded by the investors .The rationale behind this might be because of religious commitment to get involved in riba (interest)-free investment or might be due to some other contributing factors. Realizing that the majority of global sukuk issuer is from the oil exporting countries, it might be related to the price of crude oil. This study attempts to find out the possible impact of the oil price on the global sukuk index using standard time series techniques. The findings evidence a significant relationship between the crude oil price and the global sukuk index. The US interest rate also influenced the global sukuk index based on the fact that the sukuk is denominated in US dollar and the interest rate had an inverse relationship with the bond price. Thus, crude oil price and the US interest rate should be taken into consideration by the global sukuk issuer as well as the investors. From this study, the investors might take the increase in crude oil prices as a positive signal and be motivated to buy global sukuk especially from the oil producing countries as it would give them a good yield on global sukuk. From the perspective of bond issuers, the appreciation or depreciation of US dollar against other currencies was one of the factors which affected their decision to issue global sukuk or not. An US interest rate affected the exchange rate of US dollar, since an increase in US interest rate led to the appreciation of US dollar in the short term and therefore influenced the global sukuk prices as well.
    Keywords: Global sukuk (Islamic bond), oil price, VECM, VDC
    JEL: C22 C58 G15 Q43
    Date: 2018–09–30
  14. By: Oskar LECUYER; Sébastien POSTIC (I4CE)
    Abstract: In 2019, 42% of the aggregate carbon revenue was channeled to the general state budget, 47% was allocated to environmental or broader projects, 5% went to tax cuts and 6% to direct transfers to families or businesses.Countries that have successfully implemented carbon pricing have managed to align the use of carbon revenues with national priorities, associating reform with a discourse that is in line with their development agenda.Regardless of the objective sought, governance issues are crucial and range from transparency in revenue use, and clarity of trans fers and compensation, to the legitimacy of the reform process.
    JEL: Q
    Date: 2020–06–18
  15. By: Reinhold Heinlein (Bristol Business School, University of the West of England, UK); Gabriella D. Legrenzi (Keele Business School, University of Keele, UK; CESifo Research Network; Rimini Centre for Economic Analysis); Scott M. R. Mahadeo (Portsmouth Business School, University of Portsmouth, UK)
    Abstract: We investigate the relationship between oil prices and stock markets of selected oil importers and oil exporters at the time of the COVID-19 pandemic. We provide evidence in favour of energy contagion, in terms of significantly higher correlations between oil and stock markets returns during turbulent phases in the oil market, for all countries in our sample. Our results are robust to different crisis datings and consistent across different segments of the assets return distributions.
    Keywords: contagion, intraday data, local correlation, oil, stock markets
    JEL: C58 G01 G15
    Date: 2020–06
  16. By: Baumeister, Christiane; Korobilis, Dimitris; Lee, Thomas K.
    Abstract: This paper evaluates alternative indicators of global economic activity and other market fundamentals in terms of their usefulness for forecasting real oil prices and global petroleum consumption. We find that world industrial production is one of the most useful indicators that has been proposed in the literature. However, by combining measures from a number of different sources we can do even better. Our analysis results in a new index of global economic conditions and new measures for assessing future tightness of energy demand and expected oil price pressures.
    Keywords: Energy demand; Forecasting; oil price pressures; petroleum consumption; state of the world economy; stochastic volatility
    JEL: C11 C32 C52 Q41 Q47
    Date: 2020–04
  17. By: Anna Kowalska-Pyzalska; Marek Kott; Joanna Kott
    Abstract: Limited consumer knowledge reduces the chances of spread of alternative fuel vehicle (AFV). In our empirical survey conducted in the first quarter of 2020 among 1002 Poles planning to buy a car in the next 12 months or who have just bought it, we examine what socio-economic and attitudinal factors influence their knowledge about AFV. We explore how the understanding of the differences between HEV, PHEV and BEV, and brand recognition are associated with the consumers’ socio-economic attributes and a general interest in automotive technologies. To the best our knowledge this is the unique study among consumers of Central and Eastern Europe, characterized by lower exposure to AFV and lower purchasing power. Our results indicate that men, living in larger cities, with higher education and interest in modern automotive technologies are predominated to have higher AFV knowledge and are more probable to buy such a car in the future.
    Keywords: Knowledge; E-mobility; Electric vehicles; Plug-in electric vehicles; Hybrid electric vehicles; Consumers; Telephone survey
    JEL: C80 C93 D80 L91 L94
    Date: 2020–08–25
  18. By: Bert van Wee (Delft University of Technology)
    Abstract: This paper discusses how regulations can determine environmental and safety outcomes in transport systems. It explores the relationships between regulations and direct and indirect costs, and between regulations and benefits. It also discusses the ethical issues, such as the fact that cost-benefit analysis evaluates welfare effects but tends to ignore equity issues.
    Date: 2019–11–13
  19. By: Xie, B-C.; Xu, J.; Pollitt, M.
    Abstract: This paper presents an analysis of the impact of the recent power market reform process in China – following the No.9 Document of March 2015 – on the industrial price of electricity. We do this by picking a typical power price for a medium sized industrial customer in two of China’s leading reform provinces: Guangdong and Zhejiang. We find that power market reform, which is characterised by the introduction of wholesale electricity markets, has substantially reduced prices. Our detailed analysis shows that these price falls have come from a number of different sources: falls in the prices paid to generators, reductions in grid charges and falls in government taxes and additional charges. We show that the regulated price falls by 26.4% in Guangdong and by 26.9% in Zhejiang. The market price falls even further by 27.7% in Guangdong and 30.4% in Zhejiang. We conclude that while the impact of the power markets is significant, the associated changes to network charges and other government determined components of the price are more significant.
    Keywords: Chinese power market reform, electricity prices, No.9 Document
    JEL: L94
    Date: 2020–05–21
  20. By: Stephen P. Holland; Erin T. Mansur; Nicholas Z. Muller; Andrew J. Yates
    Abstract: We determine the environmental benefit of using electric buses rather than diesel or CNG for urban transit. For diesel and CNG we calculate air pollution damages by combining emission rates with damage valuations from the AP3 integrated assessment model and the social cost of carbon. For electric buses we calculate air pollution damages by combining the damage valuations with estimates of the marginal increase in emissions from electricity usage. The environmental benefit is positive on average across all counties in the contiguous U.S. when comparing electric to either diesel or CNG. The environmental benefit of operating an electric bus fleet (rather than diesel) is about $65 million per year in Los Angeles and above $10 million per year in six other MSAs. Including the environmental benefit, we calculate the net present value (NPV) of bus investment. Relative to diesel, the NPV benefit of an electric bus is positive in about two thirds of urban counties. Relative to CNG, the NPV benefit is negative in all counties.
    JEL: D62 H23 Q53 R40
    Date: 2020–05
  21. By: Simshauser, P.; Gilmore, J.
    Abstract: The recent history of Australia’s National Electricity Market (NEM) from 2012-2017 has been problematic with sudden coal plant closures, a tight domestic gas market and sharply rising electricity prices. The supply-side response that followed from 2017-2020 was an investment megacycle – 12000MW of plant commitments comprising $20+ billion across 105 projects – most of them Variable Renewables. Problems emerged including entry lags, connection delays, system Frequency careering outside normal bands, failing system strength, rising Frequency Control Ancillary Service costs and increasing Operator interventions in the security-constrained dispatch process. Market institutions were caught out. Yet instead of identifying and addressing urgent problems, a suite of market redesign proposals emerged which focus on future investment and Resource Adequacy. In this article, we analyse recent NEM performance and find all pressing issues relate to realtime power system security, not Resource Adequacy, and reflect a Rate of Change problem stemming from record levels of simultaneous (asynchronous) new entry. Resolution requires establishment of ‘missing markets’ to restore power system resilience. Fundamental market redesign is a distraction – it may well become necessary but there is no united agreement as to why this is the case nor when it is required. As it stands, no reform proposal comes even close to resolving the NEM’s existing, and pressing, problems.
    Keywords: Renewables, energy markets, investment cycles
    JEL: D24 G31 L94
    Date: 2020–05–28
  22. By: Cole, Matthew A. (University of Birmingham); Ozgen, Ceren (University of Birmingham); Strobl, Eric (University of Bern)
    Abstract: In light of the existing preliminary evidence of a link between Covid-19 and poor air quality, which is largely based upon correlations, we estimate the relationship between long term air pollution exposure and Covid-19 in 355 municipalities in the Netherlands. Using detailed secondary and administrative data we find compelling evidence of a positive relationship between air pollution, and particularly PM2.5 concentrations, and Covid-19 cases, hospital admissions and deaths. This relationship persists after controlling for a wide range of explanatory variables. Our results indicate that a 1 μ/m3 increase in PM2.5 concentrations is associated with 9.4 more Covid-19 cases, 3.0 more hospital admissions, and 2.3 more deaths. The relationship between Covid-19 and air pollution withstands a number of sensitivity and robustness exercises including instrumenting pollution to mitigate potential endogeneity and modelling spatial spillovers using spatial econometric techniques.
    Keywords: COVID-19, air pollution, Netherlands, spatial spillovers
    JEL: I21 I23 Q53
    Date: 2020–06
  23. By: Simshauser, P.
    Abstract: A central feature of electricity market reforms involved restructuring monopoly utilities. In the Generation segment, policies promoting restructuring and competition could not be faulted on the grounds of scale economies. But the partitioning of Generation from Retail received little focus. When proposals for industry restructuring emerged, multi-stage scope economies should have been of unquestionable interest but surprisingly little empirical evidence existed. Governments proceeded in the 1990s with an industrial organisation blueprint which separated Generation from Networks, and combined Retail with Distribution Networks. A second wave of industrial organisation was orchestrated by capital markets in the 2000s, splitting Retail from Distribution, and merging Retail with Generation. Many policymakers and regulators view the practice of vertical integration in a neoclassical sense; presenting risks of withholding capacity, increasing prices, raising barriers to entry, non-integrated rival foreclosure and damaging consumer welfare. But the weight of theoretical and empirical evidence points to the contrary, with transaction costs featuring prominently. In this article, a Generator and Retailer are simulated over 15 years of trade in Australia’s National Electricity Market as stand-alone businesses, and then as a merged entity. A comparison of the Sum-Of-The-Parts with the Vertical Firm reveals non-trivial transaction costs and multi-stage economies of integration – the Vertical Firm reduces costs by 17% and volatility of earnings by 83%, which produces a 26% improvement in credit quality and lifts statutory profits by 34% holding prices and volumes constant.
    Keywords: vertical integration, electricity markets, energy-only markets, transaction costs, credit ratings
    JEL: D23 D24 G34 L94
    Date: 2020–05–12
  24. By: Bialek, J.
    Abstract: The power outage on 9th August 2019 affected over 1 million customers in England and Wales and caused a major disruption to other critical infrastructures. While the power system responded exactly how it was designed to in response to an unsecured (N-2) event, it has uncovered important fault lines which may significantly affect reliability of the system in a near future. Over the last 10 years or so the GB power system has changed quite rapidly due to the decarbonisation drive and penetration of smart grids technologies. Hence it is increasingly difficult for the ESO to fully monitor, model and control the whole system and therefore the probability of hidden common modes of failures has increased. This would suggest that it might be prudent to strengthen the old (N-1) security standard by providing extra security margin. There were also other issues highlighted by the outage. Embedded generation reached such a high penetration level that it cannot be treated any longer as negative demand. Traditional under-frequency load shedding disconnects indiscriminately all customers on the disconnected feeders, including embedded generation and frequency response units, hence reducing its effectiveness. The ability of critical infrastructures and services to ride through the disturbances has to be closely monitored and tested. Finally, we have concluded that, in GB at least, power outages matter only if they affect critical infrastructures, especially transport, in London and the surrounding areas.
    Keywords: power blackouts, UK electricity, security of supply
    JEL: L94
    Date: 2020–03–18
  25. By: Liu, L-Q.; Yin, Z-L.; Xie, B-C.; Zhou, W.
    Abstract: Air pollution is a big threat to human beings and has attract worldwide attention from governments and scholars. Based on the survey of happiness in China, this paper attempts to analyze the impact of local air quality on the happiness of individuals, and to evaluate the monetary value of mitigating air pollution. Through merging individual happiness data in a nationally representative survey with daily air quality index (AQI) according to the date and location of each respondent, it calculates the marginal rate of substitution (MRS) between air quality and income, and then estimates respondents’ willingness to pay (WTP) for better air quality. Moreover, it has further explored the differences of WTPs among groups. This study reaches the conclusion that happiness is positively associated with income but negatively correlated with air pollution. Besides, individual happiness is heavily influenced by income, age, gender, health condition, marital status and other variables. Furthermore, WTPs differ greatly among groups and the estimated average WTP of whole sample is 549.36RMB(or 0.90% of annual household income) per year per family for one unit reduction in AQI.
    Keywords: Happiness, Willingness to pay, Air pollution, China
    JEL: L94
    Date: 2020–05–21
  26. By: Bolton, Patrick; Kacperczyk, Marcin
    Abstract: This paper explores whether carbon emissions affect the cross-section of U.S. stock returns. We find that stocks of firms with higher total CO2 emissions (and changes in emissions) earn higher returns, after controlling for size, book-to-market, momentum, and other factors that predict returns. We cannot explain this carbon premium through differences in unexpected profitability or other known risk factors. We also find that institutional investors implement exclusionary screening based on direct emission intensity in a few salient industries. Overall, our results are consistent with an interpretation that investors are already demanding compensation for their exposure to carbon emission risk.
    Keywords: Carbon Emissions; climate change; institutional investors; Stock returns
    JEL: D62 G12 G23 G30
    Date: 2020–04
  27. By: Stéphane Gonzalez (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - CNRS - Centre National de la Recherche Scientifique - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UL2 - Université Lumière - Lyon 2 - ENS Lyon - École normale supérieure - Lyon); Fatma Rostom (UP1 UFR02 - Université Panthéon-Sorbonne - UFR d'Économie - UP1 - Université Panthéon-Sorbonne, Chaire Energie & Prospérité - ENS Paris - École normale supérieure - Paris - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - Institut Louis Bachelier, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne)
    Abstract: The article explores the implications of natural resource scarcity in terms of global cooperation and trade. We investigate whether there exist stable international long-term agreements that take into account the disparities between countries in terms of geological endowments and productive capacity, while caring about future generations. For that purpose, we build an original cooperative game framework, where countries can form coalitions in order to optimize their discounted consumption stream in the long-run, within the limits of their stock of natural resources. We use the concept of the recursive core that satisfies both coalitional stability and time consistency. We show that this set is nonempty, stating that an international long-term agreement along the optimal path will be self-enforcing. The presented model can be viewed as a tool to refresh the common look at the North-South opposition and sets the conceptual framework for the exploration of a fair sharing of the fruits of global economic growth.
    Keywords: Non-renewable natural resources,Cooperative games,Recursive core
    Date: 2019
  28. By: Newbery, D.
    Abstract: This paper calculates the cost per tonne of CO2 abated by Sizewell B (SZB, the nuclear power station commissioned in 1995). Other zero-carbon renewables received contractual support. A long-term Contract-for-Difference (CfD) is modelled with a strike price reset every 5 yrs. by the regulator under the Regulatory Asset Base model of electric utilities. The answer depends on the Weighted Average Cost of Capital (WACC), given the range of observed utility WACCs. At a low WACC the cost is £201934.1/tonne CO2 abated and £201949.2/t. CO2 at the high WACC, compared with the roughly £40/t. CO2 paid by GB generators in 2019. Had the design for SZB been replicated for the 6.4 GW new nuclear the saving might have been £9-18 billion.
    Keywords: Cost of CO2, Nuclear power, RAB, WACC, Cost Benefit Analysis
    JEL: D61 H23 L94 C54 E43 H54 L94 Q54
    Date: 2020–05–21
  29. By: Martín Bordon Lesme (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona); Jaume Freire-González (ENT Foundation); Emilio Padilla Rosa (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)
    Abstract: We review the empirical literature concerning the magnitude of the direct rebound effect in households, ocusing on econometric studies, and analyze the theoretical and methodological aspects for the estimation of the direct rebound effect. We then estimate the magnitude of the direct rebound effect of households’ electricity consumption in Spain. Using panel data from 2007 to 2016 for all the Spanish provinces, we estimate the short- and long-run direct rebound effects. In order to deal with cointegration of variables and to solve potential spurious relationships between them, we use a two-step Error Correction Model. We also estimate the dynamic model through a GMM system. The results indicate a direct rebound effect between 26% and 35% in the short- run and around 36% in the long-run. These findings suggest that, in Spain, energy efficiency policies with the aim of saving electricity consumption are significantly less effective without complementary measures to tackle the direct rebound effect. Moreover, one can expect a greater electricity savings response from households to price changes than to income or weather changes. We find a significant influence of other energy sources that appear to be complementary to electricity consumption according to our estimation.
    JEL: Q43 Q48
    Date: 2020–05
  30. By: Noha Elboghdadly (University of Bath, UK and Alexandria University, Egypt); Michael Finus (University of Graz, Austria)
    Abstract: Border carbon adjustments (BCAs) have been suggested as a measure to reduce carbon leakage in the presence of unilateral climate policies and/or to enforce cooperative climate agreements. In an intra-industry trade model, this paper studies whether and under which conditions a sequence of escalating threats of implementing BCA-measures could be successful in enforcing a fully cooperative agreement. We start from a situation where moving from non-cooperative production-based carbon taxes to a socially optimal tax is not attractive to the environmentally less concerned country. We then test whether the threat of imposing BCA-measures, in the form of import tariffs or, additionally, complemented by export rebates, will enforce cooperation. We show that import tariffs are the least distortionary policy instrument but the weakest threat, and import tariffs with a full export rebate is the most distortionary instrument if implemented but the most effective threat to enforce cooperation. In an escalating penalty game, we determine the subgame-perfect equilibrium path along which threats must be deterrent but also credible. We show that BCA-measures help to enforce cooperation, reduce global emissions and are welfare improving if they need to be implemented. However, whenever full cooperation would generate the highest global welfare gains, BCAs fail to establish cooperation, a version of the paradox of cooperation, as proposed by Barrett (1994).
    Keywords: Border carbon adjustments; escalating penalties; enforcement of cooperation; carbon leakage.
    JEL: C7 F12 F18 Q58 H23
    Date: 2020–06
  31. By: Konrad Gajewski; Sebastian Ferrando; Pablo Olivares
    Abstract: The shortcomings of the popular Black-Scholes-Merton (BSM) model have led to models which could more accurately model the behavior of the underlying assets in energy markets, particularly in electricity and future oil prices. In this paper we consider a class of regime switching time-changed Levy processes, which builds upon the BSM model by incorporating jumps through a random clock, as well as randomly varying parameters according to a two-state continuous-time Markov chain. We implement pricing methods based on expansions of the characteristic function as in \cite{Fourier}. Finally, we estimate the parameters of the model by incorporating historic energy data and option quotes using a variety of methods.
    Date: 2020–05
  32. By: Marion Podesta (UMR ART-Dev - Acteurs, Ressources et Territoires dans le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - UM3 - Université Paul-Valéry - Montpellier 3 - UPVD - Université de Perpignan Via Domitia - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique); Jean-Christophe Poudou (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier, UM - Université de Montpellier); Michel Roland (UCL - Université Catholique de Louvain, CREATE - Université Laval)
    Abstract: France and South Korea have implemented voucher programs to counter energy poverty. In contrast to goods that traditional voucher programs target, the market structure that dominates energy supply is the oligopoly. In this paper, we study the price impact of vouchers in this market structure. We first state conditions on demand elasticities that make the choice of vouchers consistent with the regulator's objective of eliminating energy poverty. We then model a game between energy suppliers and the regulator, where suppliers maximize profit while the regulator ensures that no consumer spends more than a given share of income on energy. From a benchmark case without vouchers, we show that vouchers reduce the energy price under simultaneous decision making or when the regulator moves first. However, the price impact of vouchers is ambiguous if firms move first. This scenario's price is above the price of the simultaneous decision scenario's price.
    Abstract: La France et la Corée du Sud ont mis en place des programmes des coupons chèques pour lutter contre la précarité énergétique. Contrairement aux biens visés par les programmes de coupons traditionnels, la structure du marché qui prédomine dans l'approvisionnement énergétique est l'oligopole. Dans cet article, nous étudions l'impact prix des coupons dans cette structure de marché. Nous énonçons d'abord les conditions d'élasticité de la demande qui rendent le choix de ces chèques conforme à l'objectif du régulateur d'éliminer la précarité énergétique. Nous modélisons ensuite un jeu entre les fournisseurs d'énergie et le régulateur, où les fournisseurs maximisent le profit tandis que le régulateur s'assure qu'aucun consommateur ne dépense plus qu'une part donnée des revenus sur l'énergie. À partir d'un cas de référence sans chèque, nous montrons que les bons réduisent le prix de l'énergie lors de la prise de décision simultanée ou lorsque le régulateur joue en premier. Cependant, l'impact des coupons sur les prix est ambigu si les entreprises décident des prix en premier. Le prix de ce scénario est supérieur au prix du prix du scénario de décision simultanée.
    Keywords: Energy Poverty,Vouchers,Oligopoly,Regulation
    Date: 2020
  33. By: Raouf Boucekkine (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, IUF - Institut Universitaire de France - M.E.N.E.S.R. - Ministère de l'Education nationale, de l’Enseignement supérieur et de la Recherche); Giorgio Fabbri (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - INRA - Institut National de la Recherche Agronomique); Salvatore Federico (UNISI - Università degli Studi di Siena); Fausto Gozzi (LUISS - Libera Università Internazionale degli Studi Sociali Guido Carli [Roma])
    Abstract: We solve a linear-quadratic model of a spatio-temporal economy using a polluting one-input technology. Space is continuous and heterogenous: locations differ in productivity, nature self-cleaning technology and environmental awareness. The unique link between locations is transboundary pollution which is modelled as a PDE diffusion equation. The spatio-temporal functional is quadratic in local consumption and linear in pollution. Using a dynamic programming method adapted to our infinite dimensional setting, we solve the associated optimal control problem in closed-form and identify the asymptotic (optimal) spatial distribution of pollution. We show that optimal emissions will decrease at given location if and only if local productivity is larger than a threshold which depends both on the local pollution absorption capacity and environmental awareness. Furthermore, we numerically explore the relationship between the spatial optimal distributions of production and (asymptotic) pollution in order to uncover possible (geographic) environmental Kuznets curve cases.
    Keywords: Growth,geography,transboundary pollution,infinite dimensional optimal control problems
    Date: 2019
  34. By: Jan J. J. Groen; Michael Nattinger
    Abstract: Since the outbreak of the COVID-19 pandemic in late January, oil prices have fallen sharply. In this post, we compare recent price declines with those seen in previous oil price collapses, focusing on the drivers of such episodes. In order to do that, we break oil price shocks down into demand and supply components, applying the methodology behind the New York Fed’s weekly Oil Price Dynamics Report.
    Keywords: oil demand and supply; oil prices; COVID-19
    JEL: E2 F0 G1
    Date: 2020–05–14
  35. By: Lilas Demmou; Guido Franco
    Abstract: Measuring the quality of governance and regulation in various ways and focusing on energy, transport and telecommunications, this paper shows that both sound governance of infrastructure investment and pro-competitive regulation in network industries are associated with stronger productivity growth in firms operating downstream.
    Keywords: governance, infrastructure, investment, regulation, total factor productivity
    JEL: D24 H54 K23 L50
    Date: 2020–06–25
  36. By: Stéphane Dees
    Abstract: Emissions of pollutants tend to be procyclical as they generally increase with economic growth. However, as government policy has a role to play in the mitigation of the environmental consequences of economic activity, the quality of institutions may influence the procyclicality of pollution and reduce the environmental cost of economic growth. Based on the assumption that changes in emissions are stronger at earlier stages of development, we develop a non-linear framework and confirm first the presence of income-related threshold effects in the relationship between pollution (CO2 and greenhouse gas emissions) and growth, for a panel of 142 countries over a period spanning from 1960 to 2017. We also find that institutional quality influences this relationship, lowering both the value of the threshold and the degree of procyclicality of emissions. These results bring therefore evidence that higher institutional quality can attenuate the environmental externalities of economic growth.
    Keywords: CO2 Emissions, GHG Emissions, Economic Growth, Institutions .
    JEL: C33 O44 Q56 Q58
    Date: 2020
  37. By: Jean-Claude Berthélemy (FERDI - Fondation pour les Etudes et Recherches sur le Développement International, UP1 UFR02 - Université Panthéon-Sorbonne - UFR d'Économie - UP1 - Université Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - CNRS - Centre National de la Recherche Scientifique - UP1 - Université Panthéon-Sorbonne)
    Abstract: This paper uses a meta-analysis to investigate the challenges of decentralized electrification for economic development. It uses an original database which has evaluation data on more than 400 projects. Technological innovations, notably for solar energy, are opening new space for electrification policy, based on off-grid systems, which are particularly relevant for remote rural areas. However there are two main challenges. Firstly due to the threshold effects associated with the size of the projects based on nano size systems, typically the popular Solar Home Systems (SHS). Nano systems do not reliably lead to the transformation effects which are necessary to ensure economic sustainability. This may lead to a poverty trap. Secondly the bigger the system, the bigger the need to organize collective action for planning, installation, and management. This collective action requires proper governance structures, which can be designed using Ostrom's framework for the management of common pools of resources.
    Keywords: Decentralized electrification,sustainable development,impact assessment,meta-analysis,poverty traps,common pool of resource
    Date: 2019–11–04
  38. By: Littlechild, S.
    Abstract: In 2016, the UK Competition and Markets Authority (CMA) found that “weak customer response” enabled incumbent UK energy retailers to set higher and discriminatory prices to residential customers. The CMA estimated the associated higher prices constituted a customer detriment in the range £1.4 bn to £2 bn per year. Although the CMA recommended against a price cap on most domestic energy tariffs, the size of the detriment and public concern about “rip-off energy tariffs” nonetheless led the Government to impose a price cap as from January 2019. This paper examines the CMA’s calculation of customer detriment and suggests that it is inconsistent with CMA Guidelines and unprecedented with respect to its nature, magnitude and policy impact. Alternative more realistic calculations suggest that any detriment would have been nearly an order of magnitude lower, so that a price cap was inappropriate. This raises a number of questions about the CMA’s approach.
    Keywords: retail energy markets, market power, efficient costs
    JEL: L94 L95 L51
    Date: 2020–06–02
  39. By: Christoph Graf; Federico Quaglia; Frank A. Wolak
    Abstract: Using hourly offer curves from the Italian day-ahead market and the real-time re-dispatch market for the period January 1, 2017 to December 31, 2018, we show how thermal generation unit owners are able to profit from differences between a simplified day-ahead market design that ignores system security constraints as well as generation unit operating constraints, and real-time system operation where these constraints must be respected. We find that thermal generation unit owners increase or decrease their day-ahead offer prices depending on the probability that their final output will be increased or decreased relative to their day-ahead schedules because of real-time operating constraints. First, we estimate generation unit-level models of the probability of each of these outcomes conditional on forecast demand and renewable production in Italy and neighboring countries. Our most conservative estimate of the impact of a change in the probability a unit owner will have its day-ahead schedule increased in the real-time re-dispatch market implies a day-ahead offer price increase of 5 EUR/MWh if this probability changes by 0.1. If the probability of a day-ahead schedule decrease rises by 0.1 the unit owner's offer price is predicted to be 6 EUR/MWh less. Over our sample period, we find that the economic re-dispatch cost averaged approximately 15% of the total cost of energy consumption valued at the day-ahead price.
    JEL: Q4 Q41
    Date: 2020–05
  40. By: Khan, Aftab; Masih, Mansur
    Abstract: The financial crisis during the last decade did not only affect the stock markets but also the commodity markets. The behavior and relation of these two markets have changed during and after the financial crisis. Therefore, an understanding of the relationship between commodities and stock markets is crucial, especially during the crisis, when investors are looking for alternative investment opportunities. In this paper, we focus on commodity markets and their relation with Islamic stock markets during the financial crisis. This is one of the first attempts to study this relationship in the important and growing area of Islamic capital markets. The paper applies the recent wavelet analysis to Dow Jones Islamic index and two commodity sector indices (Energy and Precious Metal) and it aims to reveal how they commoved in the period of the Global Financial crisis, which began in the USA as the Subprime mortgage crisis. Empirical results revealed that Islamic stock market commoved to a certain extent with the commodity indices during the whole period. Also, the wavelet correlation of stock markets and commodities differ significantly when talking about different investment horizons. We observed that stock markets are in general more correlated at different horizons with Energy sector than with Precious Metal. Further, based on wavelet coherence, it is observed that the co-movement between DJ Islamic and Energy Sector is significantly more compared to the co-movement with the Precious Metal commodity sector at different time scales and frequencies.
    Keywords: Islamic stocks, commodity markets, wavelets
    JEL: C22 C58 G11 Q41 Q43
    Date: 2019–11–14
  41. By: Basu, Arnab K.; Byambasuren, Tsenguunjav; Chau, Nancy H.; Khanna, Neha
    Abstract: Indoor air pollution (IAP)–predominantly from the use of solid fuel for cooking– is a global health threat, particularly for women and young children, and one of the leading causes of infant deaths worldwide in developing countries. We estimate the causal effect of cooking fuel choice on infant mortality in India, focusing on children under five years of age using pooled cross-sectional data from the National Family Health Survey (NFHS) over the period 1992–2016. To address the potential endogeneity in the relationship between fuel choice and mortality, we instrument for cooking fuel choice using a speed of change in forest cover and ownership status of agricultural land, which induce significant variations in fuel type. We find that cooking fuel choice has a statistically significant impact on under-five and neonatal mortality, raising the mortality risk by 4.9 percent. We also find that the past literature has overestimated the association between under-five mortality and polluting fuel use by about 0.6 percentage points or equivalently, 152,000 deaths per year nationally. Our result is robust to a set of alternative specifications with the inclusion of various controls and different estimation strategies.
    Keywords: cooking fuel,indoor air pollution,infant mortality,India
    JEL: I18 N35 Q53
    Date: 2020
  42. By: Reinders, Henk Jan; Schoenmaker, Dirk; Van Dijk, Mathijs A
    Abstract: There is increasing interest in assessing the impact of climate policies on the value of financial sector assets, and consequently on financial stability. Prior studies either take a "black box" macro-modelling approach to climate stress testing or focus solely on equity instruments - though banks' exposures predominantly consist of debt. We take a more tractable finance (valuation) approach at the industry-level and use a Merton contingent claims model to assess the impact of a carbon tax shock on the market value of corporate debt and residential mortgages. We calibrate the model using detailed, proprietary exposure data for the Dutch banking sector. For a €100 to €200 per tonne carbon tax we find a substantial decline in the market value of banks' assets equivalent to 4-63% of core capital, depending on policy choices.
    Keywords: banks; carbon tax; Climate policies; Climate stress test; contingent claims analysis
    JEL: G13 G21 H23 Q54
    Date: 2020–04
  43. By: Degiannakis, Stavros; Filis, George
    Abstract: Despite the arguments that are put forward by the literature that oil price forecasts are economically useful, such claim has not been tested to date. In this study we evaluate the economic usefulness of oil price forecasts by means of conditional forecasting of three core macroeconomic indicators that policy makers are predicting, using assumptions about the future path of the oil prices. The chosen indicators are the core inflation rate, industrial production and purchasing price index. We further consider two more indicators, namely inflation expectation and monetary policy uncertainty. To do so, we initially forecast oil prices using a MIDAS framework and subsequently we use regression-based models for our conditional forecasts. Overall, there is diminishing importance of oil price forecasts for macroeconomic projections and policy formulation. An array of arguments is presented as to why this might be the case, which relate to the improved energy efficiency, the contemporary monetary policy tools and the financialisation of the oil market. Our findings remain robust to alternative oil price forecasting frameworks.
    Keywords: Conditional forecasting; oil price forecasts; MIDAS; core inflation; inflation expectations
    JEL: C53 E27 E37 Q47
    Date: 2020–05–27
  44. By: Danae Hernandez-Cortes; Kyle C. Meng
    Abstract: Market-based environmental policies are widely adopted on the basis of allocative efficiency. However, there is a growing distributional concern that market forces could increase the pollution exposure gap between disadvantaged and other communities by spatially reallocating pollution. We estimate how this “environmental justice gap” changed following the 2013 introduction of California’s carbon market, the world’s second largest and the one most subjected to environmental justice critiques. Embedding a pollution transport model within a program evaluation framework, we find that while the EJ gap was widening prior to 2013, it has since fallen by 21-30% across pollutants due to the policy.
    JEL: H4 I14 Q5 Q51 Q52 Q53 Q54
    Date: 2020–05
  45. By: Evans, S.; Mehling, M.; Ritz, R.; Sammon, P.
    Abstract: As part of the European Green Deal, the EU is considering the introduction of a Border Carbon Adjustment (BCA) to ensure that the price of imports into the EU more accurately reflects the environmental costs of their carbon content. BCAs could be an alternative to free allocation to trade-exposed sectors as a measure to address the risk of carbon leakage in the EU’s Emissions Trading System. While a BCA for exports is not categorically excluded, it is less likely to be consistent with WTO rules and therefore less likely to be proposed than an import-only BCA. A key point is that replacing free allocation by an import-only BCA would weaken the competitiveness of EU producers in foreign markets. The reason is that free allocation also helps support the cost competitiveness of domestic products that are exported to markets outside the EU. Therefore, a move to import-only BCAs does not necessarily make redundant the continued use of free allocation to help safeguard overall industrial competitiveness. While combining an import BCA with free allocation can increase the risk of legal challenges, such risks may be reduced with an appropriate design. More broadly, policymakers need to navigate a complex trade-off between competitiveness support, a stronger carbon price signal, and extra fiscal revenue.
    Keywords: Border carbon adjustment, carbon pricing, competitiveness, international trade
    JEL: H23 K33 Q54
    Date: 2020–05–06
  46. By: Jérôme Creel; Mario Holzner (The Vienna Institute for International Economic Studies, wiiw); Francesco Saraceno; Andrew Watt; Jérôme Wittwer
    Abstract: The Recovery Fund recently proposed by the EU Commission marks a sea-change in European integration. Yet it will not be enough to meet the challenges Europe faces. There has been much public debate about financing, but little about the sort of concrete projects that the EU should be putting public money into. Here we propose a 10-year, €2tn investment programme focusing on public health, transport infrastructure and energy/decarbonisation. It consists of two pillars. In a national pillar Member States – broadly as in the Commission proposal – would be allocated €500bn. Resources should be focused on the hardest-hit countries and front-loaded we suggest over a three-year horizon. The bulk of the money – €1.5tn – would be devoted to finance genuinely European projects, where there is an EU value added. We describe a series of flagship initiatives that the EU could launch in the fields of public health, transport infrastructure and energy/decarbonisation. We call for a strengthened EU public health agency that invests in health-staff skills and then facilitates their flexible deployment in emergencies, and is tasked with ensuring supplies of vital medicines (Health4EU). We present costed proposals for two ambitious transport initiatives a dedicated European high-speed rail network, the Ultra-Rapid-Train, with four-routes cutting travel times between EU capitals and regions, and, alternatively, an integrated European Silk Road initiative that combines transport modes on the Chinese model. In the area of energy/decarbonisation we seek to “electrify” the Green Deal. We call for funding to accelerate the realisation of a smart and integrated electricity grid for 100%-renewable energy transmission (e-highway), support for complementary battery and green-hydrogen projects, and a programme, modelled on the SURE initiative, to co-finance member-state decarbonisation and Just Transition policies. The crisis induced by the pandemic, coming as it does on top of the financial and euro crises, poses a huge challenge. The response needs to take account of the longer-run structural challenges, and above all that of climate change. The European Union should rise to these challenges in the reform of an ambitious medium-run recovery programme, appropriately financed. An outline of such a programme is set out here by way of illustration, but many permutations and options are available to policymakers.
    Keywords: Recovery Fund, European Green Deal, Just Transition, transport infrastructure, electricity transmission, public health, Covid-19, EU, investment
    JEL: H51 H54 I18 Q21 Q28 Q41 Q42 Q43 Q48 R41 R42 R48
    Date: 2020–06
  47. By: Simplice A. Asongu (Yaounde, Cameroon); Xuan V. Vo (Ho Chi Minh City, Vietnam)
    Abstract: There is a glaring concern of income inequality in the light of the post-2015 global development agenda of sustainable development goals (SDGs), especially for countries that are in the south of the Sahara. There are also concerns over the present and future consequences of environmental degradation on development outcomes in sub-Saharan Africa (SSA). This study provides carbon dioxide (CO2) emissions thresholds that should be avoided in the nexus between financial development and income inequality in a panel of 39 countries in SSA over the period 2004-2014. Quantile regressions are used as an empirical strategy. The following findings are established. Financial development unconditionally decreases income inequality with an increasing negative magnitude while the interactions between financial development and CO2 emissions have the opposite effect with an increasing positive magnitude. The underlying nexuses are significant exclusively in the median and top quantiles of the income inequality distribution. CO2 emission thresholds that should not be exceeded in order for financial development to continuously reduce income inequality are 0.222, 0.200 and 0.166 metric tons per capita for the median, 75th quantile and 90th quantile of the income inequality distribution, respectively. Policy implications are discussed with particular relevance to Sustainable Development Goals (SDGs).
    Keywords: Renewable energy; Inequality; Finance; Sub-Saharan Africa; Sustainable development
    JEL: H10 Q20 Q30 O11 O55
    Date: 2020–01
  48. By: Riccardo Camboni (Department of Economics and Management - University of Padova and OIPE); Alberto Corsini (Université Côte d’Azur - CNRS, GREDEG and OIPE); Raffaele Miniaci (Department of Economics and Management - University of Brescia and OIPE); Paola Valbonesi (Department of Economics and Management - University of Padova and OIPE)
    Abstract: We use the nearest neighbour propensity score matching to link dwellings holding Energy Performance Certificates (EPCs) in the Italian province of Treviso with information on the socio-economic characteristics of households most likely to inhabit them. We construct a database of 17,405 dwellings for which information on standardized energy needs is matched to data on (potential) inhabitants and their imputed income, based respectively on census records and survey data. Our analysis shows that EPC registers can be exploited to investigate how income and housing conditions affect fuel poverty and to identify municipal areas with higher fuel poverty risk. Our findings highlight that when designing interventions to reduce fuel poverty, policymakers should target households based not only on their income but also on type of heating fuel, and on efficiency and the size of their accommodation.
    Keywords: Fuel Poverty, Energy Performance Certificates (EPCs), Building and dwelling Efficiency, Energy: Government Residential Policy
    JEL: C21 I32 Q48
    Date: 2020–06
  49. By: Weinberger, Vanessa; Burger, Joseph Robert
    Abstract: We take a human macroecological approach using energy as a fundamental currency to quantify the emergence and future sustainability of urban societies globally with a special look at Latin America. Energetic scaling analysis showed most modern humans in cities in Latin America and elsewhere live at densities of ~10,000 ind/km2, ~4 orders of magnitude greater than our hunter-gatherer ancestors (<1 ind/km2). Meanwhile, modern cities consume ~10,000 watts mostly in the form of extra-metabolic (e.g., fossil fuels), ~2 orders of magnitude greater than hunter-gatherer biological metabolism (~120 watts). Further analysis of World Bank data across and within nations over time showed per capita Gross Domestic Product (GDP), energy use, and CO2 emissions are lowest in predominantly rural countries, increase in urbanizing countries and are greatest in the most urban countries. For the same level of urbanization, Latin American countries show lower per capita GDP, energy use, and CO2 emissions than global averages. These trends coincide with changes in employment with rural countries employed largely in resource-extraction sectors and highly urbanized nations in service economies. Latin American countries have higher employment in resource sectors compared to most urban countries. Increasing energy use, especially fossil fuel use, underlies urbanization and changes in economic lifestyle. However, these trends cannot continue indefinitely. Latin America, because of its rich renewable and non-renewable resources, may be spared from future uncertainties inherent to complex human-nature systems including from climate change, energy scarcity, pandemics, migration, and trade agreements if it chooses to: 1) rapidly transition to renewable powered economies, and 2) reduce population and economy size within local and regional renewable biocapacities. A rapid cultural evolution is of the essence.
    Date: 2020–06–01
  50. By: Richard S.J. Tol (Department of Economics, University of Sussex, Falmer, United Kingdom)
    Abstract: Early scholars were convinced that geography is destiny, that climate determines the human condition. Current economists by and large argue that institutions are destiny, that the only thing that matters to humans are other human beings. Neither position is tenable. I review the literature and present new empirical evidence that shows that climate does have a significant effect on development, that this effect is mediated by institutions, and that the effect shrinks with affluence.
    Keywords: climate, development
    JEL: N10 O10 O44 Q54
    Date: 2020–06
  51. By: Robert S. Pindyck
    Abstract: There is a lot we know about climate change, but there is also a lot we don't know. Even if we knew how much CO2 will be emitted over the coming decades, we wouldn't know how much temperatures will rise as a result. And even if we could predict the extent of warming that will occur, we can say very little about its impact. I explain that we face considerable uncertainty over climate change and its impact, why there is so much uncertainty, and why we will continue to face uncertainty in the near future. I also explain the policy implications of climate change uncertainty. First, the uncertainty (particularly over the possibility of a catastrophic climate outcome) creates insurance value, which pushes us to earlier and stronger actions to reduce CO2 emissions. Second, uncertainty interacts with two kinds of irreversibilities. First, CO2 remains in the atmosphere for centuries, making the environmental damage from CO2 emissions irreversible, pushing us to earlier and stronger actions. Second, reducing CO2 emissions requires sunk costs, i.e., irreversible expenditures, which pushes us away from earlier actions. Both irreversibilities are inherent in climate policy, but the net effect is ambiguous.
    JEL: D81 Q5 Q54
    Date: 2020–06

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