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on Regulation |
| By: | Natalia Fabra; Mar Reguant |
| Abstract: | We measure the pass-through of emissions costs to electricity prices and explore its determinants. We perform both reduced-form and structural estimations based on optimal bidding in this market. Using rich micro-level data, we estimate the channels affecting pass-through in a flexible manner, with minimal functional form assumptions. Contrary to many studies in the general pass-through literature, we find that emissions costs are almost fully passed-through to electricity prices. Since electricity is traded through high-frequency auctions for highly inelastic demand, firms have weak incentives to adjust markups after the cost shock. Furthermore, the costs of price adjustment are small. |
| JEL: | D44 L13 L94 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:19613&r=reg |
| By: | Flavio Menezes (School of Economics, The University of Queensland); Joisa Dutra; Xuemei Zheng |
| Abstract: | This paper examines the incentives embedded across different regulatory regimes – price cap, rate of return and mandated target regulation – for investment in energy efficiency programs at the supplier’ end of the network. In our model, s a monopolist chooses whether or not to undertake an investment in energy efficiency, which is not observable by the regulator. We explore how the monopolist’ s choice of effort changes under different regulatory regimes. We show that, in equilibrium, the monopolist chooses to exert positive effort more often under price cap regulation than under no regulation or mandated target regulation and that she exerts no effort under rate of return regulation. In terms of expected welfare, however, the results are ambiguous and complex. In particular, we provide a full characterisation of the optimal effort, optimal prices (regulated or unregulated) and expected welfare for the different regimes and show the trade-offs between rent extraction and incentives. |
| Date: | 2013–11–04 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uq2004:495&r=reg |
| By: | Liam Wagner (School of Economics, University of Queensland); Lynette Molyneaux (School of Economics, University of Queensland); John Foster (School of Economics, University of Queensland) |
| Abstract: | We seek to evaluate the extent of the pass through of increased fuel and carbon costs to wholesale prices with 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. An electricity market simulation package (PLEXOS), which uses deterministic linear programming techniques and transmission and generating plant data, is used 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 due to the full pass through of the increased costs of gas over coal as an input fuel and the Carbon Price. In addition, we find that wholesale prices increase by more than the pass through of fuel and carbon costs because of the fact that generators can charge infra-marginal rents and engage in strategic behaviour to maximize their profits |
| Keywords: | Electricity, markets, infra-marginal rent |
| JEL: | L94 D40 Q48 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:qld:uqeemg:9-2013&r=reg |
| By: | Antonio Russo (KOF Swiss Economic Institute, ETH Zurich, Switzerland); Anna D’Annunzio (Sapienza University of Rome, Italy) |
| Abstract: | We investigate the implications of Network Neutrality regulation for Internet fragmentation. We model a two-sided market, where Content Providers (CPs) and consumers interact through Internet Service Providers (ISPs) and CPs sell consumers’ attention to advertisers. Under Network Neutrality, CPs can have their traffic delivered to consumers by ISPs for free, while in the Unregulated Regime they have to pay a (non-discriminatory) termination fee. In our model multiple impressions of an ad on a consumer are partially wasteful. Thus, equilibrium ad rates decrease when the audiences of CPs overlap. We show that universal distribution of content is always an equilibrium when Network Neutrality regulation is in place. In contrast, when competition among CPs strongly reduces their profits, in the Unregulated Regime ISPs can use termination fees to induce fragmentation and extract CPs’ extra profits. This occurs when repeated impressions of an ad rapidly lose value and consumers care for content availability to a relatively small extent. Our results suggest that the Unregulated Regime is never superior to Network Neutrality from a consumer surplus and social welfare point of view. |
| Keywords: | Network Neutrality, two-sided markets, Internet, advertising, fragmentation |
| JEL: | L1 D43 L13 L51 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:kof:wpskof:13-344&r=reg |
| By: | Simon Hagemann |
| Abstract: | This paper presents a first investigation of hourly price determinants in the German intraday market for electricity. The influence of power plant outages, forecast errors of wind and solar power production, load forecast errors and foreign demand and supply on intraday prices are explained from a theoretical perspective. Furthermore the influences of the non-linear merit-order shape, ramping costs and strategic market behavior are discussed. The empirical results from different regression analysis with data from 2010 and 2011 show that most price determinants increase and decrease intraday prices as expected. Nevertheless, only a minor share of power plant outages and solar power forecast errors are traded on the electronic intraday trading platform, thus influencing prices not as strongly as expected. Furthermore the price determinants influence intraday prices differently over the course of the day which may be explained by an alternating liquidity provision. |
| Keywords: | Intraday market for electricity, price modeling, price determinants |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:dui:wpaper:1318&r=reg |
| By: | Amigues, Jean-Pierre; Ayong Le Kama, Alain; Chakravorty, Ujjayant; Moreaux, Michel |
| Abstract: | We study the transition between non renewable and renewable energy sources with adjustment costs over the production capacity of renewable energy. Assuming constant variable marginal costs for both energy sources, convex adjustment costs and a more expensive renewable energy, we show the following. With sufficiently abundant non renewable energy endowments, the dynamic equilibrium path is composed of a first time phase of only non renewable energy use followed by a transition phase substituting progressively renewable energy to non renewable energy and a last time phase of only renewable energy use. Before the complete transition towards renewable energy, the energy price follows a Hotelling like path. Depending upon the shape of adjustment costs, investment into renewable energy may either begin before production of renewable energy or be delayed until the energy price achieves a sufficient gap with respect to the renewable energy marginal production cost. In all cases, the renewable energy sector bears negative returns over its investments in its early stage of development. Investment into renewable energy production capacity building first increases before having to decrease strictly before the depletion time of the non renewable resource. Renewable energy capacity continues to expand afterwards but at a forever decreasing rate converging to zero in the very long run. The development path of renewable energy may be largely independent from the non renewable resource scarcity. In particular with initially abundant non renewable energy, the length of the transition phase between non renewable and renewable energy together with the accumulated renewable production capacity at the end of this phase do not depend upon the scarcity rent of the non renewable resource and of the initial size of the resource stock. |
| Keywords: | non renewable resource, renewable energy, adjustment costs, resources transition, capacity constraints. |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:27705&r=reg |
| By: | Nicolas Curien |
| Abstract: | Network neutrality is often mistakenly assimilated with the non-discrimination of Internet usage. Although this rough view is acceptable at first sight, as far as blocking of content or clearly anti-competitive discrimination are concerned, it becomes confusing at second sight, when the efficiency of traffic management, on the supply side, or the differentiation of consumers’ requests, on the demand side, are considered. A neutrality principle ignoring traffic efficiency and demand differentiation through enforcing a strict homogeneity in the treatment of data packets on the network would prove inappropriate as it would downgrade the quality of service while not meeting consumers’ needs.In order to clarify the on-going debates, an unambiguous and formal definition of the concept of neutrality is required. In this contribution, a tentative definition is proposed, based on the economic principle of efficiency. Perfect neutrality is first shown as being efficient, i.e. welfare maximizing, in an ideal context C*. Then, by definition, the efficient network design in some real context C distinct from C* is called “C-imperfect neutralityâ€. Depending on the specification of context C, neutrality may involve some form of efficient discrimination and becomes a flexible concept as it translates into different settings in various technological or political environments and as it may change overtime in a given environment.This approach of “the most efficient imperfection†provides an adequate framework to discuss the main net neutrality issues presently at stake in the North-American and European scenes. Among those, we shall emphasize traffic management, segmentation of demand, funding of the next generation access networks, interference of governmental policies with networks’ operations, regulation of neutrality. |
| Keywords: | regulation |
| Date: | 2013–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:erp:euirsc:p0337&r=reg |
| By: | Elcin Akcura (EBRD) |
| Abstract: | Renewable energy sources have a critical role to play in contributing to the diversity, sustainability and security of energy supplies. The main objective of the paper is to gain an understanding of the support mechanism of renewable energy sources most preferred by households in the United Kingdom. This paper analyses households’ preferences and willingness to pay under a mandatory scheme where all households contribute compared to a voluntary scheme where only those who wish to pay to support renewables do so (such as the green tariffs offered by electricity suppliers in the UK). Two self-designed contingent valuation method (CVM) surveys are used to explore whether the type of payment option has an impact on households’ willingness to pay (WTP) for increasing share of renewable energy in electricity generation. The paper also investigates whether the type of payment mode affects respondents’ self-reported certainty of paying their stated valuations. The results indicate that the likelihood of paying a positive amount for supporting renewable energy is higher under a mandatory scheme compared to a voluntary payment option in the UK. Respondents have a higher level of certainty in paying their stated WTP under a mandatory payment scheme. |
| Keywords: | contingent valuation method, renewable energy, willingness to pay, zero inflated ordered probit model |
| JEL: | C35 D10 D12 D80 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:ebd:wpaper:161&r=reg |
| By: | Julia Rothbauer (Institute of Transport Economics, Muenster); Gernot Sieg (Institute of Transport Economics, Muenster) |
| Keywords: | advertising regulation, content differentiation, welfare |
| JEL: | L82 M38 |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:mut:wpaper:19&r=reg |
| By: | Trotignon, Raphaël; De Perthuis, Christian |
| Keywords: | European Union Emission Trading Scheme; Energy policy; |
| JEL: | Q56 Q48 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:dau:papers:123456789/12035&r=reg |
| By: | Kerr, Suzi (Motu Economic and Public Policy Research) |
| Abstract: | Risk (and often the certainty) of adverse environmental outcomes motivates environmental regulation; other risks also affect welfare outcomes. Economic instruments are one way to reduce environmental risk while maintaining flexibility that helps manage other risks. However regulation not only mitigates risks, it also creates them. While the literature has explored some aspects of risk and economic instruments in great detail, other risks have been largely ignored. Actual and perceived risks are often a barrier to the use of economic instruments so, where they are appropriate, it would be valuable to pay more attention to mitigating risks and demonstrating that they can be mitigated. This note creates a framework for synthesising experience with economic instruments for managing risks relating to water quantity and quality and illustrates it with two New Zealand case studies for which detailed information is available. It also explores some linkages between economic instruments that are not primarily directed at water management – for example emissions trading - and water management outcomes. The surprising outcomes illustrate the importance of context for assessing impact and risk. |
| Keywords: | water quality; Lake Taupo; Lake Rotorua; economic instruments; risk; policy interaction |
| JEL: | D81 Q53 Q57 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:13_13&r=reg |
| By: | Miklós Antal; Jeroen van den Bergh |
| Abstract: | Energy conservation is widely accepted as an important strategy to combat climate change. It can, nevertheless, stimulate new energy uses that partly offset the original savings. This is known as rebound. One particular rebound mechanism is re-spending of money savings associated with energy savings on energy intensive goods or services. We calculate the average magnitude of this “re-spending rebound” for different fuels and countries. We find that emerging economies, neglected in past studies, typically have substantially larger rebounds than OECD countries. The effect is generally stronger for gasoline than for natural gas and electricity. Paradoxically, strengthening financial incentives to conserve energy tends to increase rebound. This is expected to gain importance with climate regulation and peak oil. We discuss the policy implications of our findings. |
| Keywords: | Rebound effect, re-spending, emerging economies |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:feu:wfeppr:y:2013:m:11:d:0:i:8&r=reg |
| By: | Hyland, Marie; Leahy, Eimear; Tol, Richard S. J. |
| Keywords: | electricity/Ireland |
| Date: | 2013–09 |
| URL: | http://d.repec.org/n?u=RePEc:esr:wpaper:rb2013/3/1&r=reg |
| By: | Gillingham, Kenneth; Palmer, Karen (Resources for the Future) |
| Abstract: | Despite several decades of government policies to promote energy efficiency, estimates of the costs and benefits of such policies remain controversial. At the heart of the controversy is whether there is an "energy efficiency gap," whereby consumers and firms fail to make seemingly positive net present value energy saving investments. High implicit discount rates, undervaluation of future fuel savings, and negative cost energy efficiency measures have all been discussed as evidence of the existence of a gap. We review explanations for an energy efficiency gap, including reasons why the size of the gap may be overstated, neoclassical explanations for a gap, and recent evidence from behavioral economics that has potential to help us understand why a gap could exist. Our review raises fundamental questions about traditional welfare analysis, yet we find the alternatives offered in the literature to be far from ready for use in policy analysis. Nevertheless, we offer several suggestions for policymakers and for future economic research. |
| Keywords: | energy efficiency, market failures, behavioral failures, behavioral economics |
| JEL: | Q38 Q41 |
| Date: | 2013–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:rff:dpaper:dp-13-02-rev&r=reg |
| By: | Manuel Frondel; Colin Vance |
| Abstract: | Using household travel diary data collected in Germany between 1997 and 2012, we employ an instrumental variable (IV) approach to estimate fuel price and efficiency elasticities. The aim is to gauge the relative impacts of fuel economy standards and fuel taxes on distance traveled. We find that the magnitudes of the elasticity estimates are statistically indistinguishable: higher fuel prices reduce driving by the same degree as higher fuel efficiency increases driving. This finding indicates an offsetting effect of fuel efficiency standards on the effectiveness of fuel taxation, calling into question the efficacy of the European Commission’s current efforts to legislate CO2 emissions limits for new cars given prevailing high fuel taxes. |
| Keywords: | Automobile travel; panel estimation models; rebound effect |
| JEL: | D13 Q41 |
| Date: | 2013–10 |
| URL: | http://d.repec.org/n?u=RePEc:rwi:repape:0445&r=reg |