nep-reg New Economics Papers
on Regulation
Issue of 2015‒07‒25
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. A Coordinated Strategic Reserve to Safeguard the European Energy Transition By Karsten Neuhoff; Jochen Diekmann; Friedrich Kunz; Sophia Rüster; Wolf-Peter Schill; Sebastian Schwenen
  2. Antimonopoly regulation method based on perfect price discrimination By Vadim Borokhov
  3. Comparing Policies to Confront Permit Over-allocation By Fell, Harrison
  4. State and Regional Comprehensive Carbon Pricing and Greenhouse Gas Regulation in the Power Sector under EPA’s Clean Power Plan: Workshop Summary By Burtraw, Dallas; Bushnell, James; Munnings, Clayton
  5. Economic impacts of renewable power generation technologies and the role of endogenous technological change By Dr. Christian Lutz; Dr. Markus Flaute; Dr. Ulrike Lehr; Dr. Kirsten Svenja Wiebe
  6. What Ails the European Union's Emissions Trading System? Two Diagnoses Calling for Different Treatments By Salant, Stephen W.
  7. Bidding Structures and Trading Arrangements for Flexibility across EU Power Markets By Neuhoff, Karsten; Ritter, Nolan; Schwenen, Sebastian
  8. Flexible Short-Term Power Trading: Gathering Experience in EU Countries By Karsten Neuhoff; Carlos Batlle; Gert Brunekreeft; Christos Vasilakos Konstantinidis; Christian Nabe; Giorgia Oggioni; Pablo Rodilla; Sebastian Schwenen; Tomasz Siewierski; Goran Strbac
  9. Social acceptance of green energy and dynamic electricity tariffs - a short review By Anna Kowalska-Pyzalska
  10. Prices versus quantities with distributional rent seeking By Ian A. MacKenzie
  11. How Do Electricity Shortages Affect Production? Evidence from India By Stephen O'Connell; Allan Collard-Wexler; Hunt Allcott
  12. When Is Social Responsibility Socially Desirable? By Jean-Etienne de Bettignies; David T. Robinson

  1. By: Karsten Neuhoff; Jochen Diekmann; Friedrich Kunz; Sophia Rüster; Wolf-Peter Schill; Sebastian Schwenen
    Abstract: In Germany and beyond, various capacity mechanisms are currently being discussed with a view to improving the security of electricity supply. One of these mechanisms is a strategic reserve that retains generation capacity for use in times of critical supply shortage. We argue that strategic reserves have specific advantages compared to other capacity mechanisms in the context of the European energy transition. To date, however, the debate on capacity mechanisms has largely been restricted to national contexts. Against this background, we discuss the feasibility and potential benefits of coordinated cross-border strategic reserves to safeguard electricity supply and aid the energy transition in Germany and neighboring countries at large. Setting aside strategic reserve capacity which is deployed only in the event of extreme supply shortages could improve the security of electricity supply without distorting the EU’s internal electricity market. In addition, overall costs may decrease when reserve procurement and activation are coordinated among countries, particularly if combined with flow-based market coupling.
    Keywords: Capacity mechanisms, strategic reserve, market design, energy policy, energy transition
    JEL: L51 Q48
    Date: 2015
  2. By: Vadim Borokhov
    Abstract: We propose a method of antimonopoly regulation in a day-ahead power market with locational marginal pricing which forms economic incentives for a producer, operating a portfolio of generating units, to submit an offer indicating its true cost and faithful values of technical parameters, entering generating units constraints. The uncertainty faced by regulator when applying the method affects neither nodal output/consumption volumes nor locational marginal prices but manifests itself in overall uplift or downlift for the market, which may be allocated among the other market players in a way preserving the price signals produced by the market.
    Date: 2015–07
  3. By: Fell, Harrison
    Abstract: Instability in cap-and-trade markets, particularly with respect to permit price collapses has been an area of concern for regulators. To that end, several policies, including hybrid price-quantity mechanisms and the newly introduced "market stability reserve" (MSR) systems have been introduced and even implemented in some cases. I develop a stochastic dynamic model of a cap-and-trade system, parameterized to values relevant to the European Union's Emission Trading System (EU ETS) to analyze the performance of these policies aimed at adding stability to the system or at least at reducing perceived over-allocations of permits. Results suggest adaptive allocation mechanisms such as a price collar or MSR can reduce permit over-allocations and permit price volatility in a more cost-effective manner than simply reducing scheduled permit allocations. However, it is also found that the performance of these adaptive allocation policies, and in particular the MSR, are greatly affected by assumed discount rates and policy parameters.
    Keywords: cap-and-trade, market stability reserve, price collar, EU ETS
    Date: 2015–06–25
  4. By: Burtraw, Dallas (Resources for the Future); Bushnell, James; Munnings, Clayton (Resources for the Future)
    Abstract: The Clean Power Plan (CPP) is the centerpiece of the US efforts to reduce carbon emissions, introducing regulation of greenhouse gas emissions from existing power plants for the first time on a national basis. These regulations may interact with existing initiatives, for example, in California, where the state has a comprehensive economy-wide cap with emissions allowance trading in place. In addition, three Pacific coast states and British Columbia have supported the idea of comprehensive pricing. This paper provides a summary of a workshop that examined the interaction of these policy approaches. A main observation in the workshop was that the forthcoming CPP will likely facilitate and complicate the prospect of comprehensive carbon pricing. Multistate coordination in complying with the CPP could be key to making simultaneous progress on both the national and regional policy efforts and could provide a pathway from regulation to carbon pricing.
    Keywords: Clean Air Act, Clean Power Plan, carbon pricing, cap and trade, regulation, emissions rates
    JEL: Q28 Q48 Q58
    Date: 2015–06–25
  5. By: Dr. Christian Lutz (GWS - Institute of Economic Structures Research); Dr. Markus Flaute (GWS - Institute of Economic Structures Research); Dr. Ulrike Lehr (GWS - Institute of Economic Structures Research); Dr. Kirsten Svenja Wiebe (GWS - Institute of Economic Structures Research)
    Abstract: This paper brings together the debate on economic impacts of renewable energy (RE) deployment and the discussion on modelling endogenous technological change on the global markets for the different renewable power generation technologies. Economic impacts of RE deployment are still mostly discussed on national level, where different effects have been identified. Recent research for Germany shows positive effects on the macro level and different distributional impacts. High investment in solar photovoltaics (PV) from 2010 to 2012 and induced increases in the RE surcharge are the main drivers. At the same time, cost reductions for wind and solar PV take place on global markets, with global learning curves explaining the cost reductions very well. This calls for better including the international dimension into the modelling. The complex feedback loops between global cost curves and national policies, which react to global learning with some time lags, are not yet integrated into quite complex economic models. These models have to capture different RE technologies, different industries, either delivering the RE technologies or strongly depending on electricity prices, which are influenced by national support policies and macroeco- nomic development. As a first step to better understand the role of international markets, assumptions on RE exports based on global scenarios can be used. Results show the importance of global markets at least for the German RE industries. If the international dimension is taken into account, mainly positive economic impacts of further RE deployment can be observed.
    Keywords: renewable energy, global learning curves, policies, economic models
    JEL: Q28 Q29 C51
    Date: 2015
  6. By: Salant, Stephen W.
    Abstract: In theory, how a fixed number of storable pollution permits are allocated in a cap-and-trade trade program should not affect intertemporal prices unless participants fail to receive permit endowments before they plan to use them. "Backloading" can create inefficiency; "frontloading" cannot. The European Union's Emissions Trading System, however, is regarded as a counterexample where frontloading itself is creating inefficiency. This view underlies current policy proposals to backload permits or to create a Market Stability Reserve. The goal of these policies is to shrink the current inventory of permits carried by the private sector without tightening the cap. We question the most prominent theory of why frontloading has been excessive by comparing its implications to a theory that attributes recent movements in the spot price of permits to ongoing regulatory risk of a price collapse much like what occurred in the 1970's in anticipation of the devaluation of the Mexican peso or the sale of massive government gold stockpiles. Correct diagnosis should precede treatment advice: if frontloading is excessive, inefficiency can be eliminated by suitable backloading of permits; if regulatory risk is excessive, however, backloading either directly or with a market stability reserve is unlikely to reduce inefficiency.
    Keywords: cap and trade, emissions trading, market stability reserve, peso problem, regulatory uncertainty
    Date: 2015–06–25
  7. By: Neuhoff, Karsten; Ritter, Nolan; Schwenen, Sebastian
    Date: 2015
  8. By: Karsten Neuhoff; Carlos Batlle; Gert Brunekreeft; Christos Vasilakos Konstantinidis; Christian Nabe; Giorgia Oggioni; Pablo Rodilla; Sebastian Schwenen; Tomasz Siewierski; Goran Strbac
    Abstract: Abstract EU power market design has been focused on facilitating trading between countries and for this has defined interfaces for market participants and TSOs between countries. The operation of power systems and markets within countries was not the focus of these developments. This may have contributed to difficulties of defining or implementing a common perspective in particular on intraday and balancing approaches. This motivated us to pursue an in depth reviewof six European power markets to contribute to a better understanding of the common elements, differences and the physical and institutional reasons for these. With this paper we aim to present the main insights emerging from the reviews and to identify where there is a need for alignment of operational aspects and short-term trading arrangements, taking into account system requirements individual member states face in operating their power system.
    Keywords: Electricity trading, Power system operation, Institutional analysis
    JEL: D40 D80 G24 L94
    Date: 2015
  9. By: Anna Kowalska-Pyzalska
    Abstract: This paper presents a review of recent literature on consumer energy behaviors and willingness to pay for innovative products in the energy market. Among such products green energy and dynamic electricity tariffs will be considered. Social and psychological factors, that influence the adoption of these products will be discussed. Consumer engagement and acceptance of green energy as well as dynamic electricity tariffs are necessary to make the diffusion of these products possible and effective. In conclusion some research challenges and potential research gaps will be described.
    Keywords: Dynamic pricing; Green energy; Social acceptance; Consumer behavior; Willingness to pay; Diffusion of innovation
    JEL: C63 O33 Q48 Q55
    Date: 2015–07–17
  10. By: Ian A. MacKenzie (School of Economics, The University of Queensland)
    Abstract: This article investigates prices versus quantities when regulation generates contestable rents. A two-stage process is outlined where, in stage one, a politician selects a policy level in the presence of uncertainty. In stage two, players invest in distributional rent seeking, i.e., rent-capturing activities to obtain the rents generated from regulation. A clear distinction is derived between prices, revenue-raising quantities as well as non-revenue-raising quantities. The politician’s payoff as well as equilibrium policy level are compared within a number of institutional environments, which take into account the politician’s preferences over rent-seeking transfers and social welfare. A key determinant is the interaction between the efficiency of rent transfer and the composition of rent seekers within the economy.
    Keywords: prices,quantities,rent seeking
    JEL: D72 D81 Q52 Q58
    Date: 2015–07–06
  11. By: Stephen O'Connell (The Graduate Center, CUNY); Allan Collard-Wexler (Duke University); Hunt Allcott (NYU)
    Abstract: Endemic blackouts are a particularly salient example of how poor infrastructure might reduce growth in developing economies. We study how electricity shortages affect all Indian manufacturers, using an instrument based on hydroelectricity production and a hybrid Leontief/Cobb-Douglas production function model. Shortages reduce average output by about five percent, but because most inputs can be stored during outages, productivity losses are much smaller. Plants without generators have much larger losses, and because of economies of scale in generator capacity, shortages more severely affect small plants.
    Date: 2015
  12. By: Jean-Etienne de Bettignies; David T. Robinson
    Abstract: We study a model in which corporate social responsibility (CSR) arises as a response to inefficient regulation. In our model, firms, governments, and workers interact. Firms generate profits but create negative spillovers that can be attenuated through government regulation, which is set endogenously and may or may not be socially optimal. Governments may choose suboptimal levels of regulation if they face lobbying pressure from companies. Companies can, in turn, hire socially responsible employees who enjoy taking actions to ameliorate the negative spillovers. Because firms can capture part of the rent created by allowing socially responsible employees to correct social ills, in some settings they find it optimal to lobby for inefficient rules and then capture the surplus associated with being "good citizens" in the face of bad regulation. In equilibrium, this means CSR can either increase or decrease social welfare, depending on the costs of political capture.
    JEL: D21 G30 H20
    Date: 2015–07

This nep-reg issue is ©2015 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.
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