nep-reg New Economics Papers
on Regulation
Issue of 2015‒10‒10
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Strategic environmental regulation of multiple pollutants By Ambec, Stefan; Coria, Jessica
  2. Decarbonizing electricity generation with intermittent sources of energy By Ambec, Stefan; Crampes, Claude
  3. Reforming UK energy policy to live within its means By David Newbery
  4. On the Social Value of Disclosed Information and Environmental Regulation By Jihad C. Elnaboulsi; W. Daher; Yigit Saglam
  5. Towards smarter regulation of innovation? By Serge Gijrath
  6. Is the depressive effect of renewables on power prices contagious? A cross border econometric analysis By Sébastien Phan, Fabien Roques
  7. Policy Strategies for Vehicle Electrification By Gunnar Lindberg; Lasse Fridstrøm
  8. Competition and Auctioning Licenses By Chatterjee, Rittwik; Chattopadhyay, Srobonti
  9. EU Air Transport Liberalisation Process, Impacts and Future Considerations By Guillaume Burghouwt; Pablo Mendes De Leon; Jaap De Wit
  10. Efficiency in Railway Operations and Infrastructure Management By Dejan Makovsek; Vincent Benezech; Stephen Perkins
  11. Measuring the Welfare Losses from Urban Water Supply Disruptions By Steven Buck; Maximilian Auffhammer; Stephen Hamilton; David Sunding
  12. GermanyWhat is Rail Efficiency and How Can it Be Changed? By Louis S. Thompson; Heiner Bente

  1. By: Ambec, Stefan; Coria, Jessica
    Abstract: We analyze the interplay between policies aimed to control global and local pollution such as greenhouse gases and particulate matter. The two types of pollution interact in the abatement cost function of the polluting firms through economies or diseconomies of scope. They are regulated by distinct entities (global versus local), potentially with different instruments that are designed according to some specific agenda. We show that the choice of regulatory instrument and the timing of the regulations matter for efficiency. Emissions of local pollution are distorted if the local regulators anticipate that global pollution will later be regulated through emission caps. The regulation is too (not enough) stringent when abatement efforts exhibit economies (diseconomies) of scope. In contrast, we obtain efficiency if the global pollutant is regulated by tax provided that the revenues from taxing emissions are redistributed to the local communities in a lump-sum way.
    Keywords: Environmental regulation, multiple-pollutants, policy spillovers, emission tax, emission standard, emissions trading
    JEL: D62 Q50 Q53 Q54 Q58
    Date: 2015–09–21
  2. By: Ambec, Stefan; Crampes, Claude
    Abstract: We examine the impact of public policies that aim to decarbonate electricity production by replacing fossil fuel energy by intermittent renewable sources, namely wind and solar power. We consider a model of energy investment and production with two sources of energy: one is clean but intermittent (e.g. wind), whereas the other one is reliable but polluting (e.g. coal). A carbon tax decreases electricity production while simultaneously increasing investment in wind power. This tax may however increase total capacity because the retailing price of electricity does not depend on energy availability, which means that windmill capacity must be backed-up by thermal power plants. Feed-in tariffs and renewable portfolio standards enhance investment into intermittent sources of energy. However, both are likely to boost electricity production beyond the efficient level, in which case they must be complemented with a tax on electricity consumption. We also determine the social value of two technologies to accommodate intermittency: energy storage and smart meters. Lastly, we consider the case of a monopoly thermal power producer. The entry of a competitive fringe of wind power producers makes the thermal power producer reduce further its production capacity, which increases the electricity price.
    Keywords: Electricity, Intermittency, Tax, Feed-in-Tariff, Renewable Energy, Pollution
    JEL: D24 D61 Q41 Q42 Q48
    Date: 2015–09
  3. By: David Newbery
    Abstract: Abstract The present pattern of taxation, charging, and providing support has accumulated over time in a haphazard way without the kind of strategic thinking that a long-term economic plan requires. This note sets out the sound economic and public finance principles that could guide the reform of energy taxes and supports primarily in the electricity sector. It argues for ending the RO and Feed-in Tariff schemes and replacing them by demonstrably successful CfD auctions which have dramatically lowered the cost of financing renewables. It argues for a state development bank to leverage cheap finance for low-carbon investments, reforming the form of the contracts, replacing the current alphabet soup of charges by the strandard rate of VAT on all energy and instead funding climate change policies from general taxation, thus exempting the productive sector from distortive charges, and allowing the Carbon Price Support to resume its trajectory, restoring fiscal sanity and balance. Ending all support for the cheapest renewable electricity (on-shore wind) makes no sense and it would be better to have a single auction for all renewables that create learning benefits – which would rule out any subsidies to tidal lagoons
    Keywords: Energy policy, renewables, support schemes, taxes
    JEL: H2 H41 Q42 Q48 Q54
    Date: 2015–09–14
  4. By: Jihad C. Elnaboulsi (CRESE, Univ. Bourgogne Franche-Comté); W. Daher (Gulf University for Science and Technology, Department of Mathematics and Natural Science); Yigit Saglam (Victoria University of Wellington, School of Economics and Finance)
    Abstract: This paper presents an analysis of environmental policy in imperfectly competitive market with private information. We examine how environmental taxes should be optimally levied when the regulator faces asymmetric information about production and abatement costs in an irreversible observable policy commitment game. Under our setting, the paper investigates how information disclosure can improve the efficiency of the tax setting process and may o¤er an e¢ cient complement to conventional regulatory approaches. From a policy perspective, our ?ndings suggest that access to publicly disclosed information improves the ability of the regulator to levy ?rms? speci?c environmental taxes. Despite its advantages, however, informational disclosure may harm the environmental policy it purports to enhance since it facilitates collusive behavior. We show that information sharing may occur and thus leads to a superior outcome in terms of industry output and emissions. Disclosure may undermine market performance and environmental policy.
    Keywords: Environmental Regulation, Emissions Taxes, Collusion, Disclosed Information, Private Information, Information Sharing.
    JEL: D81 D82 H23 L51 Q58
    Date: 2015–10
  5. By: Serge Gijrath (Universiteit Leiden)
    Abstract: The paper assesses the scope of current regulation in the electronic communications sector in a period of rapid technological changes. It explores the network operator’s dilemma how to deal with investments in innovation in a time where fundamental innovation comes from outside; and the regulator’s dilemma how to improve the conditions for access to financial resources for research and innovation. The contention is to look whether different regulatory tools, such as proactively enhancing interoperability levels, subsidies and standardization measures could complement or supplement existing measures to safeguard competition. In terms of interoperability, two cases are discussed: IP connectivity and broadband access. The focus will be on measures proposed by the Commission in 2015 for the achievement of the Digital Single Market: what is the right track: does yardstick regulation imposing price-caps still work. The road to achieving more incentive regulation appears to be bumpy as well and reorganizing the level playing field does not appear to be a viable regulatory option. Some thought is given to how infrastructure sharing and other long-term contracts could form an alternative for regulation. A mix of regulation is proposed to move towards smarter electronic communications networks.
    Keywords: Interoperability, innovation; standardization; connected continent; IP connectivity; broadband access; incentive regulation; deregulation
    JEL: K00 K23 K33
  6. By: Sébastien Phan, Fabien Roques
    Abstract: European power markets have become more integrated and the implementation of market coupling has reinforced the efficiency of cross-border trading. This paper investigates empirically the impact of renewables growth in Germany on German and French power price volatility. We find that renewables depress power prices on average and increase volatility not only domestically but also across borders. We also leverage market resiliency data to investigate the impact of increases in interconnection capacity. We find that power price volatility would decrease in France despite some contagion effects of volatility from German renewables production. Our findings have important policy implications as they demonstrate the need to coordinate cross-border support policies for renewables in order to mitigate the impact of volatility on power prices in coupled power markets.
    Keywords: capital; electricity market, renewables, market coupling, GARCH
    JEL: L1 L5 L94
    Date: 2015–09–28
  7. By: Gunnar Lindberg; Lasse Fridstrøm
    Abstract: An increase in the market share of electric vehicles is one possible policy strategy for greenhouse gas (GHG) abatement. Many governments have introduced schemes to increase the market uptake – fiscal incentives, subsidies and various regulatory policies such as support for charging stations, free parking facilities or access to restricted road lanes as well as R&D funding. A number of partial studies do exist, but the comprehensive comparative study on the effect of these different incentives has yet to be done. Based on the experience until today it is, however, possible to explore the policy options.
    Date: 2015–05
  8. By: Chatterjee, Rittwik; Chattopadhyay, Srobonti
    Abstract: Promoting competition in domestic markets is very often an important policy concern of governments in context of developmental objectives. Direct government intervention of different forms to promote competition becomes all the more necessary especially in the markets that have higher tendencies to concentrate. For example, in the market for telecom spectrum licenses, many countries impose ceilings on the number of licenses that a single individual company can possess. It is commonly believed that in the markets where permission from government is required for fresh operation or expansion of operation, e.g. through licenses, larger number of licenses lead to higher competition. But some earlier literature show that increasing the number of licenses might actually be detrimental to competition contrary to popular belief. This paper considers a situation where there is an incumbent monopolist in a market; the government is auctioning two new licenses, one for this same market and another one for a completely new market where no firm had been operating so far. A number of potential entrants are willing to bid for both the licenses. The incumbent firm is allowed to purchase only one of these licenses. If it purchases the license for its own market it can retain its monopoly position. The selling procedure dictates that only the potential entrants will be bidding and in order to purchase the license in its existing market, the incumbent monopolist has to match the highest bid in that auction. Alternatively, it can bid for the entry license for the new market. This paper tries to identify under what conditions the incumbent firm will bid for the outside market. It also tries to find under what conditions providing some other options to the incumbent firm leads to increased competition in the existing market, thus contributing to developmental prospects by enhancing social welfare.
    Keywords: Auction, Competition, Licensing
    JEL: D44
    Date: 2015–09–19
  9. By: Guillaume Burghouwt; Pablo Mendes De Leon; Jaap De Wit
    Abstract: The stepwise liberalisation of the EU internal aviation market resulted in 1993 in an open internal market that generated a series of supply side responses, which are partly comparable with the changes demonstrated in the deregulated US domestic air transport market. However, the starting point was quite different between these two markets. For example, until the deregulation in 1978, US legacy carriers operated a domestic crisscross network whereas the two flag carriers, Pan Am and TWA operated at various US gateways in stand-alone international networks based on the bilateral air service agreements concluded between the US and other states. After the deregulation, domestic major carriers transformed their crisscross domestic networks into radial hub and spoke networks (except the Delta hub at Atlanta that already existed before the deregulation). The domestic hubs in these networks also became the launching platforms for international operations when these domestic major carriers started to use their domestic feed for international operations. All in all, the former domestic major carriers became the new flag carriers in international markets, whereas the former two flag carriers went bankrupt due to the lack of domestic feed in order to adequately compete with these new internationally operating airlines.
    Date: 2015–01
  10. By: Dejan Makovsek; Vincent Benezech; Stephen Perkins
    Abstract: The ITF has produced a series of reports and discussion papers addressing the interrelated issues of railway structure and performance; see for example Beck et al. (2013), Thompson (2013), ECMT (2007) and, Thompson (2007). The academic literature on this subject is also significant, with good examples in Mizutani et al (2014), Nash et al. (2013), Van de Velde et al. (2012) and Kirchner (2002, 2004, 2007 and 2011). All of these studies have confronted the question of how to measure the performance, or efficiency, of railways both in the sense of how one railway compares with others (cross-section) and how railways have changed as a result of policy interventions (time-series). The purpose of the roundtable discussions was to revisit the issue of how to define and measure efficiency at the proper level of detail and with reasonably available data so that policy makers can benchmark the performance of their railways, evaluate the impact of past changes in railway structure, ownership or regulation and assess the likely outcome of future initiatives. The challenge is inherent in the phrases “proper level of detail” and “reasonably available data”.
    Date: 2015–05
  11. By: Steven Buck (Department of Economics, University of California, Berkeley); Maximilian Auffhammer (Department of Economics, University of California, Berkeley); Stephen Hamilton (Department of Economics, California Polytechnic State University); David Sunding (Department of Economics, University of California, Berkeley)
    Abstract: The paper evaluates welfare losses from urban water supply disruptions. The analysis incorporates important features of the water industry that may cause the initial allocation of water to be inefficient, namely that ther are a large number of retail-level water utilities, and that mosst water utilities engage in a form of average cost pricing where volumetric rates are used to finance fixed expenses. We consider a sample of 53 urban water utilities in California collectively providing service to over 20 million customers. We calculate shortage losses for these utilities using existing water rates and utility-specific price elasticities dervied from a demand estimation based on a panel data set of 37 California water utilities. Welfare losses for an annual 10% shortage ranging from an average of $1,458 per acre-foot of shortage to an average of $3,426 per acre-foot of shortage for a 30% supply disruption. The results indicate a household-level willingness-to-pay to avoid an annual shortage of approximately $60 to $600 depending on the shortage size and location. Beyond average losses, we also find evidence that there is substantial variation in shortage losses across utilities. For a 30% supply disruption, for example, the standard deviation across utilities of mean annual losses per acre-foot is $4,102.
  12. By: Louis S. Thompson; Heiner Bente
    Abstract: Assessing railway efficiency is complex for a number of reasons. Railways produce a wide range of outputs including passenger service, freight service and, in some cases, separated infrastructure access services. Railways that differ in scale or in the mix of these services inherently differ in their apparent “efficiency.” Railway data sets, though probably more detailed than in other modes, are fraught with issues of quality, consistency and cost and asset allocation. Assessing “efficiency” necessarily requires both cross-sectional indices to put each railway into proper context and time series data to show changes in performance over time in response to changes in the railway’s economic and policy environment. This paper assembles a wide database of railway data relating to operating scale and various indices of performance over the period of 1970 to 2011. We show, as expected, that railways differ widely in scale and mix of services, which may partly explain differences in ranking by performance indices. We show also that railway performance has changed greatly over time and that, in some cases, changes in performance can at least partly be attributed to reforms in structure, ownership and management incentives.
    Date: 2014–11

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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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.