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on Regulation |
| By: | Meredith Fowlie; Mar Reguant; Stephen P. Ryan |
| Abstract: | We assess the long-run dynamic implications of market-based regulation of carbon dioxide emissions in the US Portland cement industry. We consider several alternative policy designs, including mechanisms that use production subsidies to partially offset compliance costs and border tax adjustments to penalize emissions associated with foreign imports. Our results highlight two general countervailing market distortions. First, following Buchanan (1969), reductions in product market surplus and allocative inefficiencies due to market power in the domestic cement market counteract the social benefits of carbon abatement. Second, trade exposure to unregulated foreign competitors leads to emissions “leakage” which offsets domestic emissions reductions. Taken together, these forces result in social welfare losses under policy regimes that fully internalize the emissions externality. In contrast, market-based policies that incorporate design features to mitigate the exercise of market power and emissions leakage can deliver welfare gains. |
| JEL: | L5 Q5 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18645&r=reg |
| By: | Yuliya Demyanyk; Elena Loutskina |
| Abstract: | Mortgage companies (MCs) originated about 60% of all mortgages before the 2007 crisis and continue to hold a 30% market share postcrisis. While financial regulations are strictly enforced for depository institutions (banks), they are weakly enforced for MCs even if they are subsidiaries of a bank holding company (BHC). This study documents that the resulting regulatory arbitrage creates incentives for BHCs to engage in risk shifting through their MC affiliates. We show that MCs are established to circumvent the capital requirements and to shield the parent BHCs from loan-related losses. BHCs run the risky mortgage business through their MC affiliates. As compared to bank affiliates of BHCs, the MC affiliates lent more to individuals with lower credit scores, lower incomes, and higher loan-to-income ratios. MC borrowers experienced higher rates of foreclosure and delinquency during the crisis. Our results imply that the regulation in place had the capacity to prevent the deterioration of lending standards widely blamed for the crisis. The inconsistent enforcement of regulation, though, eroded its effectiveness. Higher involvement of mortgage companies in subprime lending and securitization activity do not explain our results. |
| Keywords: | Banks and banking ; Mortgages ; Foreclosure ; Regulation ; Regulation |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedcwp:1220&r=reg |
| By: | Sadowska, M.; Willems, Bert (Tilburg University, Tilburg Law and Economics Center) |
| Abstract: | Abstract: In November 2011 Sweden abolished the uniform national electricity price and introduced separate price zones. This was the result of an antitrust settlement between the Commission and the Swedish network operator, which was accused of discriminating between domestic and export electricity transmission services and segmenting the internal market. Based on this case, we show how the Commission uses competition law enforcement to foster market integration in the energy sector. We find that, even though the Commission’s action under competition rules was contrived and lacked economic depth, the commitment package provides an economically sound, longterm solution to network access and congestion management in Sweden. Such a quick and far-reaching change of Swedish congestion management could not have been achieved by Swedish policymakers or enforcement of the EU sector-specific regulation. |
| Keywords: | competition policy;Article 102 TFEU;commitment decisions;European energy markets;transmission congestion;Swedish network operator. |
| JEL: | K21 K23 K K42 L43 L44 L94 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubtil:2012043&r=reg |
| By: | Steven Ongena (Tilburg University; CEPR - Centre for Economic Policy Research); Alexander Popov (European Central Bank); Gregory F. Udell (Indiana University Bloomington) |
| Abstract: | This paper provides the first empirical evidence that bank regulation is associated with cross-border spillover effects through the lending activities of large multinational banks. We analyze business lending by 155 banks to 9613 firms in 1976 different localities across 16 countries. We find that lower barriers to entry, tighter restrictions on bank activities, and higher minimum capital requirements in domestic markets are associated with lower bank lending standards abroad. The effects are stronger when banks are less efficiently supervised at home, and are observed to exist independently from the impact of host-country regulation. JEL Classification: G21, G28, G32 |
| Keywords: | Bank regulation, cross-border financial institutions, lending standards, financial risk |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20121488&r=reg |
| By: | Haney, A.B.; Pollitt, M.G. |
| Abstract: | Benchmarking of electricity networks has a key role in sharing the benefits of efficiency improvements with consumers and ensuring regulated companies earn a fair return on their investments. This paper analyses the theory and practice of international benchmarking of electricity transmission by regulators. We examine the literature relevant to electricity transmission benchmarking and conduct a survey of 48 national electricity regulators. Consideration of the literature and our survey indicates that electricity transmission benchmarking is significantly more challenging than electricity distribution benchmarking. New panel data techniques aimed at dealing with unobserved heterogeneity and the validity of the comparator group look intellectually promising but are in their infancy for regulatory purposes. In electricity transmission choosing variables is particularly difficult, because of the large number of potential variables to choose from. Failure to apply benchmarking appropriately may negatively affect investors’ willingness to invest in the future. While few of our surveyed regulators acknowledge that regulatory risk is currently an issue in transmission benchmarking, many more concede it might be. New regulatory approaches – such as those based on tendering, negotiated settlements, a wider range of outputs or longer term grid planning - are emerging and will necessarily involve a reduced role for benchmarking. |
| Keywords: | Electricity transmission; benchmarking; regulation |
| JEL: | L94 |
| Date: | 2012–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1254&r=reg |
| By: | Takao Asano; Noriaki Matsushima |
| Abstract: | This paper analyzes the situation in which a national government introduces environmental regulations. Within the framework of an international duopoly with environmental regulations, this paper shows that an environmental tax imposed by the government in the home country can induce a foreign firm with advanced abatement technology to license it to a domestic firm without this technology. Furthermore, when the domestic firmfs production technology is less efficient than that of the foreign firm, the foreign firm may freely reveal its technology to the domestic firm. These improvements through the voluntary transfer of technology support the Porter hypothesis, which states that environmental regulations have positive impacts on innovation. |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:0862&r=reg |
| By: | Jamasb, T.; Nepal, R. |
| Abstract: | The electricity systems have a central role to play in the transition towards a low carbon economy and integration of renewable energy sources in the European Union. However, the European electricity networks face a diverse set of existing and new risks that can hamper the energy security of member countries. This paper aims to qualitatively and quantitatively assess these risks given the changing operating framework of the industry characterised by market liberalization and network interconnectedness among the EU members. Within this context, we primarily focus on the risks from exceptional events and threats to the European electricity systems. An ex-ante risk assessment matrix is proposed to gauge the network risks and take prevention measures against them. Such assessment can be a useful approach for policymakers and practitioners amidst the existing ex-post quality of supply performance standards and indicators. Our analysis suggests that economic risks pose the most serious and challenging risks to the evolving European electricity system. |
| Keywords: | Networks, risks, energy security, regulation |
| JEL: | L94 L50 Q30 |
| Date: | 2012–12–19 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1251&r=reg |
| By: | Sagasta Elorza, Amagoia; Usategui Díaz de Otalora, José María |
| Abstract: | We analyze optimal second-best emission taxes in a durable good industry under imperfect competition. The analysis is performed for three different types of emissions and for situations where the good is rented, sold or simultaneously sold and rented. We show, for durable goods that may cause pollution in a period (or in periods) different from the production period, that the expected overall emission tax and the expected total marginal environmental damage per unit produced in each period are the relevant variables to consider in the analysis of overinternalization and in the comparison of optimal emission taxes for renting, selling and renting-selling firms. Our results allow to extend some previous results in the literature to these durable goods and provide an adequate perspective on some other results (in particular, we point out the limitations of focusing only, for those durable goods, on the level and effects of the optimal emission tax in the production period). |
| Keywords: | optimal emission taxes, overinternalization,, durable good, emission types, imperfect competition |
| JEL: | Q58 Q53 H23 L13 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:dfaeii:9178&r=reg |
| By: | Liam Wagner (Department of Economics, University of Queensland); Lynette Molyneaux (Department of Economics, University of Queensland); John Foster (Department of Economics, University of Queensland) |
| Abstract: | We seek to evaluate the projection that a carbon price will reduce emissions at least cost by inducing a shift of generation from coal-fired to gas-fired plants. Modelling of Australia’s National Electricity Market in 2035 is undertaken using Australian Energy Market Operator assumptions for fuel costs, capital costs and demand forecasts and an electricity market simulation package which uses deterministic linear programming techniques, and transmission and generating plant data, to optimise the power system and determine the least cost dispatch of generating resources to meet a given demand. We find that wholesale market prices increase substantially due to the increased costs of gas over goal as an input fuel and carbon price but also as a result of infra-marginal rents and strategic behaviour by generators to maintain margin as well as pass through additional costs. |
| Keywords: | Natural Gas, Electricity Markets |
| JEL: | Q40 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqeemg:11-2012&r=reg |
| By: | Ciarreta Antuñano, Aitor; Zárraga Alonso, Ainhoa |
| Abstract: | This paper models the mean and volatility spillovers of prices within the integrated Iberian and the interconnected Spanish and French electricity markets. Using the constant (CCC) and dynamic conditional correlation (DCC) bivariate models with three different specifications of the univariate variance processes, we study the extent to which increasing interconnection and harmonization in regulation have favoured price convergence. The data consist of daily prices calculated as the arithmetic mean of the hourly prices over a span from July 1st 2007 until February 29th 2012. The DCC model in which the variances of the univariate processes are specified with a VARMA(1,1) fits the data best for the integrated MIBEL whereas a CCC model with a GARCH(1,1) specification for the univariate variance processes is selected to model the price series in Spain and France. Results show that there are significant mean and volatility spillovers in the MIBEL, indicating strong interdependence between the two markets, while there is a weaker evidence of integration between the Spanish and French markets. We provide new evidence that the EU target of achieving a single electricity market largely depends on increasing trade between countries and homogeneous rules of market functioning. |
| Keywords: | electricity price markets, multivariate GARCH, volatility spillovers |
| JEL: | C51 C32 Q49 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ehu:biltok:9184&r=reg |
| By: | Lynette Molyneaux (Department of Economics, University of Queensland); Craig Froome (Business School, University of Queensland); Liam Wagner (Department of Economics, University of Queensland); John Foster (Department of Economics, University of Queensland) |
| Abstract: | With carbon dioxide the major contributor to anthropogenic climate change, being required to reduce the carbon emissions from burning coal for electricity presents a systemic shock to Australian power. The Australian government is committed to the development of its coal seam gas resources for export to lucrative world markets and to transition domestic power generation to greater resilience by moving away from a reliance on coal to lower-emissions intensive gas. Using a commercially available modelling package, PLEXOS, we model what a transition to gas fired generation in the year 2035 would deliver and compare that to a transition to power from renewable technologies. The results indicate that a transition to gas fired generation reduces emissions only marginally and that wholesale prices will be higher than the renewable energy option. |
| Keywords: | RESILIENCE, ELECTRICITY, RENEWABLE ENERGY, DISTRIBUTED GENERATION |
| JEL: | Q40 Q42 Q47 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqeemg:13-2012&r=reg |
| By: | Ivana Capozza; Joseph Curtin |
| Abstract: | Germany committed itself to challenging greenhouse gas (GHG) emission reduction targets to 2020 and beyond. It has implemented a composite mix of policy measures to achieve its climate change mitigation goals, including a range of market-based instruments. These measures have helped reduce domestic GHG emissions, as well as achieve other policy objectives. However, they have generated multiple (explicit and implicit) carbon prices, which can reduce the overall cost-effectiveness of climate change mitigation policy. This paper examines the carbon prices that have emerged from the implementation of three key market-based instruments in Germany: energy taxes, vehicle taxes and the EU Emissions Trading System. It also reviews the use of feed-in tariffs to promote electricity generation from renewable sources, with a focus on the implied GHG abatement costs and the interactions with other environmental policy instruments. This Working Paper relates to the 2012 OECD Environmental Performance Review of Germany: http://www.oecd.org/environment/environmentalcountryreviews/oecdenvironmentalperformancereviewsge rmany2012.htm<BR>L’Allemagne s’est engagée à respecter des objectifs ambitieux de réduction des émissions de gaz à effet de serre (GES) en 2020 et ultérieurement. Elle met en oeuvre tout un éventail de mesures pour atteindre ses objectifs d’atténuation du changement climatique, et notamment divers instruments économiques. Ces mesures ont contribué à réduire les émissions nationales de GES, et à atteindre d’autres objectifs. Cependant, il en découle plusieurs prix du carbone (explicites et implicites), qui risquent de nuire à l’efficacité globale par rapport aux coûts de son action. Le présent rapport examine les prix du carbone qui se dégagent de l’application de trois instruments économiques clés en Allemagne : les taxes sur l’énergie, les taxes sur les véhicules et le système d'échange de quotas d'émission de l’UE. Il aborde aussi le recours aux tarifs d’achat pour encourager la production d’électricité moyennant des sources renouvelables, en mettant l’accent sur les coûts implicites de réduction des émissions de GES et les interactions avec d’autres instruments de la politique d’environnement. Ce document de travail se rapporte à l’Examen environnemental de l'OCDE de l’Allemagne, 2012 : http://www.oecd.org/fr/environnement/examensenvironnementauxparpays/examensenvironnementaux delocdeallemagne2012.htm |
| Keywords: | Germany, emissions trading systems, environmentally related taxes, environmentally harmful subsidies, carbon price, Allemagne, taxes liées à l'environnement, système d’échange de droits d’émissions, subventions dommageables pour l’environnement, prix du carbone |
| JEL: | H23 Q48 Q52 Q54 Q58 |
| Date: | 2012–12–14 |
| URL: | http://d.repec.org/n?u=RePEc:oec:envaaa:52-en&r=reg |