nep-reg New Economics Papers
on Regulation
Issue of 2014‒11‒22
thirteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Incentive Regulation and Utility Benchmarking for Electricity Network Security By Tooraj Jamasb; Rabindra Nepal
  2. Comparing Feed-In Tariffs and Renewable Obligation Certificates - The Case of Repowering Wind Farms By Tim Mennel; Teresa Romano; Sara Scatasta
  3. The European Emissions Trading System (EU ETS): Ex-Post Analysis, the Market Stability Reserve and Options for a Comprehensive Reform By Brigitte Knopf; Nicolas Koch; Godefroy Grosjean; Sabine Fuss; Christian Flachsland; Michael Pahle; Michael Jakob; Ottmar Edenhofer
  4. The Potential for Segmentation of the Retail Market for Electricity in Ireland By Hyland, Marie; Leahy, Eimear; Tol, Richard S. J.
  5. The impact of broadband quality standards on Internet services market structure In colombia By Juan Daniel Oviedo; Julian Hidalgo
  6. The Role of Renewable Energy Laws in Expanding Energy from Non-Traditional Renewables By Nancy McCarthy; Heath Henderson
  7. The impact of electricity constraints on access to finance: A firm-level study By Nakhoda, Aadil
  8. Tariff Regulation with Energy Efficiency Goals By Laura Abrardi; Carlo Cambini
  9. “Industrial Emissions Abatement: Untangling the Impacts of the EU ETS and the Economic Crisis” By Germà Bel; Stephan Joseph
  10. Carbon and Energy Prices: Surfing the Wavelets of California By Rita Sousa; Luís Francisco Aguiar-Conraria; Maria Joana Soares
  11. The Risks and Tricks in Public-Private Partnerships By Elisabetta Iossa; Giancarlo Spagnolo; Mercedes Vellez
  12. Economic incentives for carbon sequestration: A review of the literature By Aklilu, Abenezer; Gren, Ing-Marie
  13. The inefficiency of marginal cost pricing on roads By Grahn-Voorneveld , Sofia

  1. By: Tooraj Jamasb; Rabindra Nepal
    Abstract: The incentive regulation of costs related to physical and cyber security in electricity networks is an important but relatively unexplored and ambiguous issue. These costs can be part of a cost efficiency benchmarking or alternatively dealt separately. This paper discusses the issues and proposes on the options for incorporating network security costs within incentive regulation in a benchmarking framework. The relevant concerns and limitations associated with network security costs accounting and classification, choice of cost drivers, data adequacy and quality and the relevant benchmarking methodologies are discussed. The discussion suggests that the present regulatory treatment of network security costs using benchmarking is rather limited to being an informative regulatory tool than being deterministic. We discuss how alternative approaches outside of the benchmarking framework such as the use of stochastic cost-benefit analysis and cost-effectiveness analysis of network security investments can complement the results obtained from benchmarking.
    Keywords: benchmarking, network security, incentive regulation, exceptional events
    JEL: L94 L51 L98
    Date: 2014–10–03
  2. By: Tim Mennel; Teresa Romano; Sara Scatasta
    Abstract: This paper compares support mechanisms for renewable energy with respect to their ex-ante effectiveness in promoting the adoption of innovative technologies. We analyse two stylized policy instruments in the context of the example of wind repowering: renewable quotas and feedin tariffs. Quota systems, such as the British Renewable Obligation Certificates (ROCs), are based on mandatory renewable quotas. Feed-in tariffs (FITs), such as the German EEG tariffs, guarantee a certain, fixed price for ’green’ electricity over the economic lifetime of the investment. This paper focuses on one aspect of the difference between the two instruments: the allocation of uncertainty. While under ROCs both electricity price and capital cost risks are borne by the owner of the wind farm, under FITs only capital cost risks remain with the owner. The model is calibrated on data for German wind power plants. Our general result is that the owner is more likely to adopt a new technology under price certainty as provided by FITs. Another finding is that electricity price and capital cost volatility have different impacts on the propensity to invest under ROCs. While, even a small positive variation in electricity price volatility increases the propensity to invest, an increase in capital cost volatility does not affect the likelihood to repower wind farms. The last result also applies under FITs.
    Keywords: renewable policy, technology diffusion, wind power
    JEL: Q28 H25 Q58
    Date: 2013
  3. By: Brigitte Knopf (Potsdam Institute for Climate Impact Research); Nicolas Koch (Mercator Research Institute on Global Commons and Climate Change; Berlin); Godefroy Grosjean (Potsdam Institute for Climate Impact Research); Sabine Fuss (Mercator Research Institute on Global Commons and Climate Change, Berlin and International Institute for Applied Systems Analysis, Laxenburg); Christian Flachsland (Mercator Research Institute on Global Commons and Climate Change, Berlin); Michael Pahle (Potsdam Institute for Climate Impact Research); Michael Jakob (Potsdam Institute for Climate Impact Research and Mercator Research Institute on Global Commons and Climate Change, Berlin); Ottmar Edenhofer (Potsdam Institute for Climate Impact Research, Mercator Research Institute on Global Commons, Berlin and Climate Change and Technische Universität, Berlin)
    Abstract: The central pillar of European climate policy, the European Emissions Trading System (EU ETS), is currently under scrutiny, as the allowance price is persistently low at around 5€/tCO2. The cap was met and emissions actually declined in recent years, ensuring the environmental effectiveness of the scheme. However, the low price may affect the long-term cost-effectiveness of the instrument by reducing the incentive for investment and deployment of low carbon technologies. No significant increase in the allowance price is expected before 2020, and probably not beyond, without reform. While the reasons for the price decline are controversial, empirical analysis shows that only a small portion of price fluctuations can be explained by factors such as the economic crisis, renewable deployment or international offsets. Therefore, it is likely that political factors and regulatory uncertainty have played a key role in the price decline. As a consequence, any reform of the EU ETS has to deliver a mechanism that reduces such uncertainty and stabilizes expectations of market participants. The Market Stability Reserve proposed by the EU Commission is unlikely to address the current problem of price uncertainty and insufficient dynamic efficiency. The key element of the alternative reform proposal described in this paper is to set a price collar in the EU ETS with lower and upper boundaries. This is likely to reinforce the long-term credibility and reliability of the price signal. In addition, a price for GHG emissions not covered by the EU ETS has to be set. If additional market failures prevent the market from functioning efficiently, specific policy instruments related to innovation and technology diffusion should be implemented in addition to carbon pricing. Carbon leakage could be addressed through tailor-made trade policies. In parallel, increasing the coalition of countries included in the carbon pricing should remain a priority. This reform package would bring the EU ETS back to life, while avoiding a relapse into potentially costly and inefficient national climate and energy policies.
    Keywords: EU ETS, Emissions Trading, Carbon Price, Price Collar, Market Stability Reserve, Credibility
    JEL: Q42 Q48 Q54 Q58
    Date: 2014–09
  4. By: Hyland, Marie; Leahy, Eimear; Tol, Richard S. J.
    Keywords: electricity/Ireland
    Date: 2013–09
  5. By: Juan Daniel Oviedo; Julian Hidalgo
    Abstract: This paper develops a structural model which allows estimating the impact of regulatory decisions looking for the setting of download-speed standards on market structure and performance. We characterize a setting under which quality standards improve both service quality and availability. As to quality, we evaluate the impact of quality standards on the performance of local demand from a detailed database of broadband internet subscribers, discriminated by the main attributes of an internet subscription contract as location, supplier, monthly-fee, download- and upload-speed features. From these results, we are able to identify the effect of quality regulation on the behavior of internet providers in a differentiated product market approach. As a consequence, we are able to assert that the response of internet service providers to quality regulation is a more intense product differentiation that contributes to demand expansion and therefore to improve broadband penetration indicators.
    Keywords: Regulation, Telecommunication, Information Services, InternetEconomics.
    JEL: L51 L96 L86
    Date: 2014–10–10
  6. By: Nancy McCarthy; Heath Henderson
    Abstract: Many countries in Latin America and the Caribbean are interested in diversifying their energy sources for energy security and in contributing to the reduction of greenhouse gases. Non-traditional renewable energy (NTRE) sources, which include wind, solar, geothermal and small-scale hydropower, have received a lot of attention towards meeting these goals. To foster the expansion of NTRE, different countries have pursued different legal and regulatory approaches, but there remains very limited evidence regarding the effectiveness of different approaches. In this paper, we use a unique dataset that combines information on NTRE growth rates and information on the legal and regulatory framework, as well as other control variables, for 27 countries over the period 2001-2010. Legal and regulatory instruments include legally binding and non-binding quantity targets, contracts guaranteeing premium prices, fiscal incentives and import duty waivers, and guaranteed access to the grid. Using an information-theoretic Markov Chain analysis, results indicate that fiscal incentives and guaranteed access have relatively high impacts on transitions into high growth rates, whereas fiscal incentives and import duty waivers have relatively high impacts on transitions into moderate growth rates. Binding and non-binding agreements increase transitions out of negative and zero growth rates, but to relatively low positive growth rates. Contracts with premium subsidies also have limited impacts on transitions into high growth rates, though they are associated with transitions into the low growth category. These results provide additional evidence on which regulatory instruments have been most effective in aiding countries in expanding their NTRE.
    Keywords: Renewable energy, Energy policy, Environmental Policy, Regulatory framework, Renewable energy
    Date: 2014–08
  7. By: Nakhoda, Aadil
    Abstract: Firms that report insufficient electricity from the public grid are likely to experience higher constraints on access to finance. The lack of availability of electricity will translate to greater production delays and lower expected profits. Consequently, it will have an adverse impact on the constraints on access to finance. In this paper, I study the impact of constraints on getting electricity as well as electricity usage costs on the constraints on access to finance. I determine whether firms within countries with a deficit level of electricity supply exhibit different patterns in the aforementioned relationship than firms within countries with a surplus level of electricity supply.
    Keywords: constraints on getting electricity; electricity usage costs; access to finance; government institutions
    JEL: D24 G21 G31 H41 L21 L60 O25
    Date: 2014–10
  8. By: Laura Abrardi; Carlo Cambini
    Abstract: We study the optimal tariff structure that could induce a regulated utility to adopt energy efficiency activities given that it is privately informed about the effectiveness of its effort on demand reduction. The regulator should optimally offer a menu of incentive compatible two-part tariffs. If the firm's energy efficiency activities have a high impact on demand reduction, the consumer should pay a high fixed fee but a low per unit price, approximating the tariff structure to a decoupling policy, which strenghtens the firm's incentives to pursue energy conservation. Instead, if the firm's effort to adopt energy efficiency actions is scarcely effective, the tariff is characterized by a low fixed fee but a high price per unit of energy consumed, thus shifting the incentives for energy conservation on consumers. The optimal tariff structure also depends on the cost of the consumer's effort (in case the consumer can also adopt energy efficiency measures) and on the degree of substitutability between the consumer's and the firm's efforts.
    Keywords: Energy efficiency, demand-side regulation, decoupling, price-cap
    JEL: L51
    Date: 2014
  9. By: Germà Bel (Faculty of Economics, University of Barcelona); Stephan Joseph (Faculty of Economics, University of Barcelona)
    Abstract: In this study we use historical emission data from installations under the European Union Emissions Trading System (EU ETS) to evaluate the impact of this policy on industrial greenhouse gas emissions during the first two trading phases (2005-2012). As such the analysis seeks to disentangle two causes of emission abatement: that attributable to the EU ETS and that attributable to the economic crisis that hit the EU in 2008/09. Using a panel data approach the estimated emissions reduction attributable to the EU ETS is about 21% of the total emission abatement during the observation period. These results suggest therefore that the lion’s share of abatement was attributable to the effects of the economic crisis, a finding that has serious implications for future policy adjustments affecting core elements of the EU ETS, including the distribution of EU emission allowances.
    Keywords: Climate policy; European Union Emissions Trading System; panel data analysis; verified emission data JEL classification: C23 O13 Q54 Q58
    Date: 2014–10
  10. By: Rita Sousa (Universidade do Minho); Luís Francisco Aguiar-Conraria (Universidade do Minho - NIPE); Maria Joana Soares (Universidade do Minho)
    Abstract: Carbon price is a key variable in management and risk decisions in activities related to the burning of fossil fuels. Using innovative multivariate wavelet analysis, we study the link between carbon prices and primary and final energy prices in the time and frequency dimensions, particularly in longer cycles (4 ∼ 8 and 8 ∼ 20 months). We show a tight relation between carbon and electricity prices, co-moving together in one-year cycles, with electricity slightly leading, in opposition with previous results obtained for Europe. Thus, an over-allocation of allowances to the power generating sector is suggested. We also find indication of an out-of-phase relation between carbon and oil prices, with oil leading, and expect this relation to intensify when including fuel distributors in the CA market. Finally, and contrary to EU ETS previous results, we do not find a significant relation between carbon and economic activity. In conclusion, although our results are not as significant as the ones previously obtained by other authors, for Europe, they show that the variables are related in the longer term, which supports the development of emissions trading in the post-2020.
    Keywords: Carbon market; Energy prices; WCI; Multivariate wavelet analysis
    Date: 2014
  11. By: Elisabetta Iossa; Giancarlo Spagnolo; Mercedes Vellez
    Abstract: PPPs have been implemented broadly around the world in the infrastructure sector -water and sanitation, transports, energy, and telecommunications- and, more recently, in the provision of public services -education, health, prisons, and water and waste management. Key aspects of the contract design, such as risk allocation and payment mechanisms, significantly affect the PPP outcomes because they affect the incentives of the public and private parties to deliver a public service that satisfies user needs. Nevertheless, contractual provisions used in practice often do not implement the efficient risk allocation. In this paper, we discuss the crucial role of the public sector in designing and imposing standardized contracts, monitoring their compliance, disclosing contractual information to the general public, and transferring risks to the private sector in order to reduce the likelihood of PPP performance failure.
    Keywords: Concession contracts, Incentives, Public Private Partnerships, Risk Allocation
    JEL: D02 D20 D82 L33 L38
    Date: 2013
  12. By: Aklilu, Abenezer (Department of Economics, Swedish University of Agricultural Sciences); Gren, Ing-Marie (Department of Economics, Swedish University of Agricultural Sciences)
    Abstract: The main purpose of this study is to review studies in economics on policies for carbon sequestration. Specific design problems are associated with heterogeneous land holders, additionality and permanence in carbon projects, and the risk of leakage. It was found that a large part of the literature, which started in the late 1980s, has been focused on the calculation of costs for carbon sequestration, mainly in forests, and on calculations of cost savings from its introduction in climate programs. Results from the literature point to cost savings of up to 40%. The small body of literature on transaction costs, mainly attributed to monitoring and verification, indicates that these costs are modest. The literature on policy design is much more scant, and the main part suggests discounting of the carbon sink value to account for the uncertainty. Assessment of equilibrium prices in the many existing voluntary and regulatory carbon sink markets shows a lower price of carbon sink compared with certain abatement of fossil fuels. This can be explained by risk discounting. A few studies suggest contract design for self-enforcement of efficient carbon projects. This has not yet been implemented in carbon sink offsets in practice, the carbon trade of which corresponds to approximately 0.3% of all carbon trade.
    Keywords: economic incentives; carbon sequestration; policy design; survey
    JEL: Q52 Q54 Q58
    Date: 2014–11–03
  13. By: Grahn-Voorneveld , Sofia (VTI)
    Abstract: The economic principle of road pricing is that a road toll should equal the marginal cost imposed by an additional user, since this will lead to efficient use of the transport facility. However, when the road is used by traffic both from the road providing region as well as by traffic from another region, the supplied road standard is likely to be too low, since the consumer surplus of the users from outside the region is not taken into account. This can be solved by letting an authority level higher than the road supplier use taxes and earmarked transactions to raise the road standard. (In Europe we see this done in the Trans European Network). To do this the higher authority needs very detailed information about the road and the users on local level. Further raising taxes and transactions also involve costs that can be substantial. Another problem is that transactions of this type it is hard to separate from other political interference. This paper analyzes how a limited toll on top of the marginal cost can serve the purpose of solving this problem locally, without involving a higher authority.
    Keywords: Marginal cost pricing; Congestion; Road quality
    JEL: R41 R48
    Date: 2014–09–05

This nep-reg issue is ©2014 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.