nep-reg New Economics Papers
on Regulation
Issue of 2013‒10‒25
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Climate and Carbon: Aligning Prices and Policies By OECD
  2. Rational Inattention and Energy Efficiency By James M. Sallee
  3. Residential end-use electricity demand : Development over time By Hanne Marit Dalen; Bodil M. Larsen
  4. Fred Schweppe meets Marcel Boiteux and Antoine-Augustin Cournot: transmission constraints and strategic underinvestment in electric power generation By Léautier, Thomas-Olivier
  5. Asymmetric Neutrality Regulation and Innovation at the Edges: Fixed vs. Mobile Networks By Jay Pil Choi; Doh-Shin Jeon; Byung-Cheol Kim
  6. The European Union Emissions Trading System : should we throw the flagship out with the bathwater ? By Frédéric Branger; Oskar Lecuyer; Philippe Quirion
  7. The Effect of Public Policies on Consumers' Preferences: Lessons from the French Automobile Market By D'Haultfoeuille, Xavier; Durrmeyer, Isis; Février, Philippe
  8. Economic benefits of decarbonising the global electricity sector By J. F. Mercure; P. Salas; A. Foley; U. Chewpreecha; H. Pollitt; P. B. Holden; N. R. Edwards
  9. Firm competitiveness and the European union emissions trading scheme By Chan, Hei Sing; Li, Shanjun; Zhang, Fan
  10. Appraising transport strategies that induce land use changes By Parker, Chris
  11. Would Border Carbon Adjustments prevent carbon leakage and heavy industry competitiveness losses? Insights from a meta-analysis of recent economic studies By Frédéric Branger; Philippe Quirion
  12. Competition through Cooperation? The Case of the German Postal Market By Toufic M. El Masri

  1. By: OECD
    Abstract: The international community has agreed to limit the average global temperature increase to no more than 2ºC above pre-industrial levels. This will require a gradual phase-out of fossil fuel emissions by the second half of this century. This report brings together lessons learned from OECD analysis on carbon pricing and climate policies. It recommends that governments ensure coherent policies surrounding the gradual phase-out of fossil fuel emissions and consistent signals to consumers, producers and investors alike. A key component of this approach is putting an explicit price on every tonne of CO2 emitted. Explicit pricing instruments, however, may not cover all sources of emissions and will often need to be complemented by other policies that effectively put an implicit price on emissions. But the policies must be mutually supportive and as cost-effective as possible, both on their own and as a package. In addition, tax exemptions and fossil-fuel subsidies that undermine the transition towards zero carbon solutions must be reformed. Finally, the report highlights the issues of competitiveness, distributional impacts and communication as key elements in implementing climate policy reform. Climat et carbone : rapprochement de la politique et des prix La communauté internationale s’est accordée sur la nécessité de maintenir l'augmentation de la température moyenne de la planète en deçà de 2º C par rapport au niveau de l'ère préindustrielle. Cela nécessitera une élimination progressive des émissions liées aux combustibles fossiles durant la seconde moitié de ce siècle. Ce rapport rassemble les enseignements tirés de l’analyse de l’OCDE sur la tarification du carbone et les politiques en matière de changement climatique. Il recommande aux gouvernements de s’assurer de la cohérence à la fois des politiques visant à la suppression progressive des émissions liées aux combustibles fossiles, et des signaux envoyés aux consommateurs, producteurs et investisseurs. Un élément clé de cette approche consiste à établir de façon explicite un prix pour chaque tonne de CO2 émise. Toutes les sources d’émissions ne peuvent cependant pas se prêter à une telle approche et il sera nécessaire de faire appel à d’autres mesures établissant un prix du carbone de manière implicite. Les politiques mises en place doivent se soutenir mutuellement et offrir un bon rapport coût/efficacité, à la fois individuellement et collectivement. De plus, il est nécessaire de réformer les exemptions fiscales et les subventions aux combustibles fossiles qui compromettent la transition vers des solutions décarbonées. Enfin, le rapport souligne le rôle clé des questions de compétitivité, des effets redistributifs, ainsi que l’importance de la communication pour mettre en oeuvre la réforme des politiques en matière de changement climatique.
    Date: 2013–10–09
  2. By: James M. Sallee
    Abstract: If time and effort are required to accurately ascertain the lifetime value of energy efficiency for a durable good, consumers might rationally ignore energy efficiency. This paper argues that such inattention may be rational in the market for automobiles and home appliances. To do so, it develops a heuristic model of a consumer's decision problem when purchasing an energy consuming durable good in which uncertainty about each good's energy efficiency can be resolved via costly effort. The model indicates under what conditions the consumer will be less likely to undertake this effort. The empirical portion of the paper argues that energy efficiency is often not pivotal to choice. This, along with a simulation of the automobile market, suggests that returns to paying attention to energy may be modest, and analysis of the information readily available to consumers suggests that the costs of being fully informed may be substantial. The paper discusses the implications of rational inattention for public policy and for empirical research on the energy paradox.
    JEL: D03 H23 Q48
    Date: 2013–10
  3. By: Hanne Marit Dalen; Bodil M. Larsen (Statistics Norway)
    Abstract: It is costly and difficult to meter electricity consumption for different end uses, e.g. space heating, lighting and household appliances. We deduce a model for using cross-sectional data for total annual electricity consumption for a sample of households, together with information from energy surveys, to estimate the end uses within an econometric demand model conditional on appliance ownership. By applying a consistent method to Norwegian data for 1990, 2001 and 2006, we compare results over time and detect possible trends. We find that electricity consumption for many end use necessities such as washing, water heating and refrigeration varies somewhat from year to year, but they show no trend. The only clear trend is a steady increase in electricity used for more untraditional end uses and newer types of appliances. Total energy consumption for heating purposes is quite stable over the time period.
    Keywords: Energy end-use consumption over time; Econometric conditional demand model
    JEL: C51 D12 Q40
    Date: 2013–04
  4. By: Léautier, Thomas-Olivier
    Abstract: This article examines imperfectly competitive investment in electric power generation in the presence of congestion on the transmission grid. Under simple yet realistic assumptions, it precisely derives the technology mix as a function of the capacity of the transmission interconnection. In particular, it …nds that, if the interconnection is congested in one direction only, the cumulative capacity is not a¤ected by the congestion, while the baseload capacity is simply the uncongested baseload capacity, weighted by the size of its domestic market, plus the interconnection capacity. If the interconnection is successively congested in both directions, the peaking capacity is the cumulative uncongested capacity, weighted by the size its domestic market, plus the capacity of the interconnection, while the baseload capacity is the solution of a simple …rst-order condition. The marginal value of interconnection capacity is shown to generalize the expression obtained under perfect competition. It includes both a short-term component, that captures the reduction in marginal cost from substituting cheaper for more expensive power, but also a long-term component, that captures the change in installed capacity. Finally, increasing interconnection is shown to have an ambiguous impact on producerspro…ts. For example, if the interconnection is congested in one direction only, increasing capacity increases a monopolist pro…t. On the other hand, if the line is almost not congested, it reduces oligopolistspro…ts.
    JEL: D61 L11 L94
    Date: 2013–09–19
  5. By: Jay Pil Choi (School of Economics, University of New South Wales, Sydney; Department of Economics, Michigan State University); Doh-Shin Jeon (Toulouse School of Economics and CEPR); Byung-Cheol Kim (School of Economics, Georgia Institute of Technology)
    Abstract: We study how net neutrality regulations affect high-bandwidth content providers’ investment incentives in quality of services (QoS). We find that the effects crucially depend on network capacity levels. With a limited network capacity, the prioritized delivery services are complements to content providers' investments and can facilitate entry of high-bandwidth content. By contrast, if the network capacity is large enough, the prioritized delivery and QoS investment are substitutes. In either case, the social welfare effects of the prioritized service is ambiguous. In the limited capacity case, the beneficial effects of entry by high-band width content should be weighed against the cost of increasing congestion for other existing content. In the high capacity case, the negative impact of reduced investment incentives can be counterbalanced by the benefit of improved traffic management. Our findings have important implications for the contrasting neutrality regulations across the Atlantic: US FCC treats mobile networks more leniently than fixed networks, while the EU treats them equally.
    Keywords: Net neutrality, asymmetric regulation, quality of service, investment incentives, queuing, congestion, mobile/fixed Networks
    JEL: L1 L5 O3
    Date: 2013–10
  6. By: Frédéric Branger (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech); Oskar Lecuyer (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech); Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech)
    Abstract: The European Union Emissions Trading System (EU-ETS), presented as the ''flagship'' of European climate policy, is subject to many criticisms from different stakeholders. Criticisms include the insufficient carbon emissions reduction, the competitiveness losses and the induced carbon leakages, the unfair distributional effects, the frauds and the existence of several other overlapping climate policy instruments. We review these criticisms and find the EU-ETS brought small but real abatements. The competitiveness losses and carbon leakages do not seem to have occurred. The distributional effects have indeed been unfair and fraud has been important. Finally, the scheme does not justify abandoning other climate policies. Some of these problems could have been avoided and can still be corrected by rethinking flexibility mechanisms and by adding some control over the carbon price.
    Keywords: EU-ETS; climate policy; carbon price; flexibility mechanisms; carbon leakage; competitiveness; frauds; distributional effects
    Date: 2013–07
  7. By: D'Haultfoeuille, Xavier; Durrmeyer, Isis; Février, Philippe
    Abstract: In this paper, we investigate whether French consumers have modified their preferences towards environmentally-friendly vehicles between 2003 and 2008. We estimate a model of demand for automobiles incorporating both consumers' heterogeneity and CO2 emissions of the vehicles. Our results show that there has been a shift in preferences towards low-emitting cars, with an average increase of 367 euros of the willingness to pay for a reduction of 10 grams of carbon dioxide per kilometer. We also stress a large heterogeneity in the evolution of preferences between consumers. Rich and young people are more sensitive to environmental issues, and our results are in line with votes for the green party at the presidential elections. We relate these changes with two environmental policies that were introduced at these times, namely the obligation of indicating energy labels by the end of 2005 and a feebate based on CO2 emissions of new vehicles in 2008. Our results suggest that such policies have been efficient tools to shift consumers utility towards environmentally-friendly goods, the shift in preferences accounting for 20% of the overall decrease in average CO2 emissions of new cars on the period.
    Keywords: environmental policy; consumers' preferences; CO2 emissions; automobiles
    JEL: D12 H23 L62 Q51
    Date: 2013–10–10
  8. By: J. F. Mercure; P. Salas; A. Foley; U. Chewpreecha; H. Pollitt; P. B. Holden; N. R. Edwards
    Abstract: Conventional economic analyses of stringent climate change mitigation have generally concluded that economic austerity would result from carbon austerity. These analyses however rely critically on the assumption of an economic equilibrium, which dismisses established notions on behavioural heterogeneity, path dependence and technology transitions. Here we show that on the contrary, the decarbonisation of the electricity sector globally can lead to improvements in economic performance. By modelling the process of innovation-diffusion and non-equilibrium dynamics, we establish how climate policy instruments for emissions reductions alter economic activity through energy prices, government spending, enhanced investment and tax revenues. While higher electricity prices reduce income and output, this is over-compensated by enhanced employment generated by investments in new technology. We stress that the current dialogue on the impacts of climate policies must be revisited to reflect the real complex dynamics involved in the global economy, not captured by conventional models.
    Date: 2013–10
  9. By: Chan, Hei Sing; Li, Shanjun; Zhang, Fan
    Abstract: The European Union Emissions Trading Scheme is the first international cap-and-trade program for carbon dioxide and the largest carbon pricing regime in the world. A significant concern over the Emissions Trading Scheme has been the potential impact on the competitiveness of industry. Using data on 5,873 firms in ten European countries during 2001-2009, this paper assesses the impact on three variables through which the effects on firm competitiveness may manifest -- unit material costs, employment and revenue. The analysis focuses on the three most heavily-emitting industries under the program -- power, cement, and iron and steel. Empirical results indicate that the Emissions Trading Scheme has had different impacts across these three sectors. Although no impacts are found on any of the three variables in the cement and iron and steel industries, a positive effect is found on both material costs and revenue in the power sector. The effect on material costs likely reflects fuel-switching to reduce carbon dioxide emissions, while that on revenue may be partly due to cost pass-through to consumers in a market that is less exposed to competition outside the Europen Union. Overall the findings do not substantiate concerns over carbon leakage, job loss or industry competitiveness during the study period.
    Keywords: Climate Change Mitigation and Green House Gases,Climate Change Economics,Energy Production and Transportation,E-Business,Environment and Energy Efficiency
    Date: 2013–10–01
  10. By: Parker, Chris (New Zealand Institute of Economic Research)
    Abstract: This paper develops formulations for estimating the economic welfare impacts of transport strategies that change land use. The formulations seek to use outputs of transport modelling typically used for transport appraisal.
    Keywords: transport; cost benefit analysis; land use; New Zealand
    JEL: D61 R14 R40
    Date: 2013–06–05
  11. By: Frédéric Branger (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech); Philippe Quirion (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales [EHESS] - École des Ponts ParisTech (ENPC) - AgroParisTech)
    Abstract: The efficiency of unilateral climate policies may be hampered by carbon leakage and competitiveness losses. A widely discussed policy option to reduce leakage and protect competitiveness of heavy industries is to impose Border Carbon Adjustments (BCA) to non regulated countries, which remains contentious for juridical and political reasons. The estimation of carbon leakage as well as the assessment of different policy options led to a substantial body of litterature in energy-economic modeling. In order to give a quantitative overview on the most recent research on the topic, we conduct a meta-analysis on 25 studies, altogether providing 310 estimates of carbon leakage ratios according to different assumptions and models. The typical range of carbon leakage ratio estimates are from 5% to 25% (mean 14%) without policy and from -5% to 15% (mean 6%) with BCA. The output change of Energy Intensive Trade Exposed (EITE) sectors varies from -0.1% to -16% without BCA and from +2.2% to -15.5% with BCA. A meta-regression analysis is performed to further investigate the impact of different assumptions on the leakage ratio estimates. The decrease of the leakage ratio with the size of the coalition and its increase with the binding target is confirmed and quantified. Providing flexibility reduces leakage ratio, especially the extension of coverage to all GHG sources. High values of Armington elasticities lead to higher leakage ratio and among the BCA options, the extension of BCA to all sectors is in the meta-regression model the most efficient feature to reduce the leakage ratio. Our most robust statistical finding is that, all other parameters being constant, BCA reduces leakage ratio by 6 percentage points.
    Keywords: Carbon leakage; Competitiveness; Border Carbon Adjustments; Meta-analysis; Meta-regression analysis; Computable General Equilibrium (CGE) models
    Date: 2013–09
  12. By: Toufic M. El Masri (Leuphana University Lueneburg, Germany)
    Abstract: How can small and medium-sized German postal providers ensure nationwide geographical coverage without the aid of the former monopolist? A closer look at the industry revealed that postal providers in Germany engage in different types of cooperation in order to expand their geographical coverage independently from the market leader. In order to shed light on the effects of cooperation, I conducted a theoretical analysis using a spatial economic model complemented by a brief game-theoretical discussion. Moreover, I provide the first descriptive and case study evidence from unique data collected in 2010 and 2011, within the framework of a German postal market survey. I found that small postal providers cooperate with each other in order to extend their geographical service area and to succeed in the market. Furthermore, I also found – in both the theoretical analysis as well as in the evidence – that there is a negative counter-effect stemming from this cooperation.
    Keywords: Cooperation, Competition, Germany, Network Industries, Postal Sector
    JEL: D24 L22 L51 L97
    Date: 2013–10

This nep-reg issue is ©2013 by Natalia Fabra. 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.