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on Regulation |
| By: | Fischer, Fischer; Greaker, Mads; Rosendahl, Knut Einar (School of Economics and Business, Norwegian University of Life Sciences) |
| Abstract: | In many regions, renewable energy targets are a primary decarbonization policy. Most of the same jurisdictions also subsidize the manufacturing and/or deployment of renewable energy technologies, some being su¢ ciently aggressive as to engender WTO disputes. We consider a downstream energy-using prod- uct produced competitively but not traded across regions, such as electricity or transportation. A renewable energy technology is available, provided by a limited set of upstream suppliers who exercise market power. With multiple market fail- ures (emissions externality and imperfect competition), renewable market share targets as the binding climate policy, and international trade in equipment, the stage is set to examine rationales for green industrial policy. Subsidies may be provided downstream to energy suppliers and/or upstream to technology sup- pliers; each has tradeo¤s. Subsidies can o¤set underprovision upstream, but they allow dirty generation to expand when the portfolio standard becomes less binding. Downstream subsidies raise all upstream pro…ts and crowd out foreign emissions. Upstream subsidies increase domestic upstream market share but expand emissions globally. In our two-region model, strategic subsidies chosen noncooperatively can be optimal from a global perspective, if both regions value emissions at the global cost of carbon. But if the regions su¢ ciently undervalue global emissions, restricting the use of upstream subsidies can enhance welfare. |
| Keywords: | Strategic technology policy; Renewable energy standard; Upstream technology market |
| JEL: | H23 L13 Q54 |
| Date: | 2016–01–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nlsseb:2016_001&r=reg |
| By: | Perino, Grischa; Jarke, Johannes |
| Abstract: | Climate policies overlapping a cap-and-trade scheme are generally considered not to change domestic emissions. In a two-sector general equilibrium model where only one sector is covered by a cap, we find that such policies do have a net impact on carbon emissions through inter-sectoral leakage. Promotion of renewable energy reduces emissions if tax-funded, but can increase emissions if funded by a levy on electricity. Replacing fossil fuels by electricity in uncapped sectors (e.g. power-to-heat or electric cars) and increases in the efficiency of electricity use reduce domestic emissions. Moreover, the commonly used measure to assess renewable energy policies is biased. |
| JEL: | Q58 Q48 H23 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113007&r=reg |
| By: | May, Nils Günter |
| Abstract: | Germany has been a leader in governmental support for renewable energies, which now represent about 27 % of electricity generation. In 2012 (voluntary) / 2014 (obligatory), the country changed from a xed Feed-In Tari (FIT) to a Market Premium Scheme (MPS) for wind power projects. One aim of this adjustment was to align the supply of generated wind electricity with the demand for it, e.g. through more system-friendly wind turbine technology choices. However, based on a wind investment model, I show that the MPS fails to convey strong enough incentives to project developers to alter their investment decision. Furthermore, I analyze an additional change in the reference location model, as it plays an integral part in both the xed FIT and the MPS. The investment model indicates that such a policy manages to incentivize the deployment of more system-friendly wind power technologies. Additionally, I consider a policy approach that is optimized with respect to a future energy system. This policy provides investors with even stronger incentives to adapt their technology choices. |
| JEL: | Q42 Q55 O38 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112856&r=reg |
| By: | Lehmann, Paul; Söderholm, Patrik |
| Abstract: | While there is relatively limited disagreement on the general need for supporting the deployment of renewable energy sources for electricity generation (RES-E), there are diverging views on whether the granted support levels should be technology-neutral or technology-specific. In this paper we question the frequently stressed argument that technology-neutral schemes will promote RES-E deployment cost-effectively. A simple partial equilibrium model of the electricity sector with one representative investor is developed to illustrate how the cost-effective support levels to different RES-E technologies will be influenced when selected market failures are introduced. We address market failures associated with technological development, long-term risk taking, path dependencies as well as various external costs, all of which drive a wedge between the private and the social costs of RES-E deployment. Based on these analytical findings and a review of empirical literature, we conclude that the relevance of these market failures is typically heterogeneous across different RES-E technologies. The paper ends by discussing a number of possible caveats to implementing cost-effective technology-specific support schemes in practice, including the role of various information and political economy constraints. While these considerations involve important challenges, neither of them suggests an unambiguous plea for technology-neutral RES support policies either. |
| Keywords: | technology deployment,renewable energy sources,support schemes,cost-effectiveness |
| JEL: | H23 O33 Q42 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ufzdps:12016&r=reg |
| By: | Simmler, Martin; Haan, Peter |
| Abstract: | In 2012, the subsidy for electricity produced by wind turbines - introduced with the Renewable Energy Act (REA) in Germany 2000 - amounts to almost 14 billion Euros or roughly 100% of the corporate income tax revenue. The central aim of this subsidy is to foster investment into renewable energy sources by providing long run financial security. In this analysis, we study the incidence of this subsidy on land prices. Our empirical design exploits variation over time in the return of wind turbines due to the introduction of the REA and relates it to changes in transaction prices for agricultural land for 250 non-urban counties between 1997 and 2012. We employ an instrumental variable estimator to ensure unbiased coefficients despite the endogeneity of the plants' location decision. We find that 11% of the subsidy paid to wind turbine investors is capitalized into land prices. Accounting for investor's costs, the share raises to 24% of investor's profits. The results are robust for a wide range of specifications. |
| JEL: | H23 H22 Q42 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112950&r=reg |
| By: | Cullmann, Astrid; Nieswand, Maria |
| Abstract: | In this paper we analyze the investment behavior of electricity distribution companies. First, we test the hypothesis if the implementation of an incentive-based regulatory scheme with revenue caps impacts the firms' investment decisions in general. Second, we test if the specific regulatory design to determine the revenue caps impacts the firms' investment behavior. The analysis is based on a unique and detailed firm level data for German electricity distribution companies over the 2006-2012 period. Controlling for a large amount of firm specific heterogeneity and ownership, we show that the investment rate is higher after the implementation of incentive regulation in 2009. Furthermore, we find that the design with its specific institutional constraints for determining the revenue-caps, influence the investment decisions of the firms. Especially in the base year, when the rate base is determined for the following regulatory period, investments increase. The analysis demonstrates that the whole design of incentive regulation must be taken into account for a sound assessment of investment behavior in electricity distribution. |
| JEL: | L94 L51 D22 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113090&r=reg |
| By: | KITAMURA Toshihiko; MANAGI Shunsuke |
| Abstract: | Using plant level data, we investigate the substitution between purchased electricity and fuel usage for onsite power generation by estimating the cross price elasticities in Japan. We find that the sensitivity of the fuel demand for onsite power generation to the changes in the price of purchased electricity and the degree of sensitivity depend heavily on industrial characteristics. We also calculate the expenditure elasticities for the fuels and find that firms prefer to use electricity generated on site compared to purchased electricity. Furthermore, from the analysis of the preference for fuel types used in onsite generation, we find that coal, which is relatively inexpensive but has relatively high CO₂ emission, is increasingly preferred by firms across industries. Some industries indeed are contributing to the reduction of CO₂ emissions by either replacing oil with scrap materials as fuel and/or utilizing recovered fuel or byproducts to generate onsite power. The results indicate the effort capacity to reduce emissions appears to heavily depend on industrial characteristics. |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:16007&r=reg |
| By: | Meran, Georg; Schwarze, Reimund |
| Abstract: | This paper develops an analytical framework for studying the Baumol-Oates efficiency of traditional single instrument abatement policies vis-a-vis green defaults in the face of price inertia and deliberate defaulting of subpopulations. In this special case of behavioural heterogeneity command and control approaches can outperform price-based instruments and pure tax/subsidy schemes need to be adjusted in order to achieve politically desired levels of abatement. Moreover we prove that choice-preserving nudges are superior to any single-instrument policy in this case. An average marginal abatement cost rule is developed to optimise the green defaults and traditional policies of standards and prices under different degrees of market rigidity. |
| JEL: | H23 Q58 L51 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113185&r=reg |
| By: | Boom, Anette |
| Abstract: | Inspired by recent regulations in the New York ICAP market, this paper examines the effect of price regulations on a multi-unit uniform price auction. General bid caps reduce the maximum price below the bid cap, but also the minimum potential market price below the cap. A bid cap only for the larger firms does not guarantee a market price below the cap. A sufficiently high bid floor only for relatively small firms destroys some or all pure strategy equilibria with equilibrium prices above the marginal costs. With a general bid floor this happens only with considerably larger bid floors. |
| JEL: | D44 D43 L13 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112998&r=reg |
| By: | Herrmann, Johannes; Savin, Ivan |
| Abstract: | The diffusion of renewable electricity generating technologies is widely consid- ered as crucial for establishing a sustainable energy system in the future. However, currently the required transition is unlikely to be achieved by market forces alone. For this reason, many countries implement various policy instruments to support this process, also by re-distributing costs related to the policy instruments applied among all electricity consumers. This paper presents a novel history-friendly agent-based study aiming to explore efficiency of different mixes of policy instruments by means of a differential evolution algorithm. Special emphasis of the model is devoted to possibility of small scale renewable electricity generation without any further inputs, but also to storage of this electricity using small scale facilities being actively developed over the last decade. Both combined pose an important instrument to be used by electricity consumers to achieve partial or full autarky from the electricity grid, particularly after accounting for decreasing costs and increasing efficiency of both due to continuous innovation. Another distinct feature of this study is attention to stability of the electricity grid since more consumers becoming autarkic make, on the one hand, electricity in the grid more expansive, while on the other hand, supply of the electricity more vulnerable. |
| JEL: | C63 Q42 Q48 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112959&r=reg |
| By: | Green, Rikard (Modity Energy Trading); Larsson, Karl (Department of Economics, Lund University); Lunina, Veronika (Department of Economics, Lund University); Nilsson, Birger (Department of Economics, Lund University) |
| Abstract: | This paper investigates dynamic interrelations in volatilities and correlations of the returns on the German energy forward markets. Our focus is on the volatility spillovers to electric power from news in the prices of gas, coal and carbon emission allowances. We discuss the relationship between our results and the fundamental developments in the energy markets during the sample period from 2008 to 2013; in particular, the changes over time in spark and dark spreads, and the actual generation mix. We use a general VAR-BEKK model together with the variance response function to analyze and evaluate the spillover effects. Special attention is paid to the selection of an appropriate econometric volatility model. Our results show that spillover effects display significant time variation. Spillovers from coal to power are significant throughout our sample while the spillover from gas has decreased during the most recent period. On the contrary we find that spillovers from carbon have increased in strength over time. These results are consistent with the developments in these markets during the sample. |
| Keywords: | energy forward markets; time-varying volatility spillovers; volatility impulse response function; skew-Student asymmetric BEKK |
| JEL: | C32 C58 Q41 |
| Date: | 2016–01–13 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2016_002&r=reg |
| By: | Zaklan, Aleksandar; Ellerman, Denny; Valero, Vanessa |
| Abstract: | The existence of some 2 billion unused EU Allowances (EUAs) at the end of Phase II of the EU s Emissions Trading System (EU ETS) has sparked considerable debate about structural shortcomings of the EU ETS. However, there has been a surprising lack of interest in considering the accumulation of EUAs in light of the theory of intertemporal permit trading, i.e. allowance banking. In this paper we adapt basic banking theory to the case of a linearly declining cap, as is common in greenhouse gas control systems. We show that it is perfectly rational for agents to decrease emissions beyond the constraint imposed by the cap initially, accumulating an allowance bank and then drawing it down in the interest of minimizing abatement cost over time. Having laid out the theory, we carry out a set of simulations for a reasonable range of key parameters, geared to the EU ETS, to illustrate the effects of intertemporal optimization of abatement decisions on optimal time paths of emissions and allowance prices. We conclude that bank accumulation as the result of intertemporal abatement cost optimization should be considered at least a partial explanation when evaluating the current discrepancy between the cap and observed emissions. |
| JEL: | Q54 D92 F18 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113034&r=reg |
| By: | Scholtens, Bert; Veldhuis, Rineke |
| Abstract: | Abstract We investigate how the development of the financial industry connects with renewable energy. We analyze 198 countries over three decades in various model settings (fixed effects, random effects, dynamic panel). We use a wide range of proxies for the development of the financial industry and establish that in general this development has a positive impact on renewable energy capacity. Especially, the relative size of the commercial banking industry as well as of private credit and the size of the financial industry play a crucial role in advancing renewable energy investments. |
| JEL: | C33 E22 G10 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113114&r=reg |
| By: | Gerigk, Joschka; MacKenzie, Ian; Ohndorf, Markus |
| Abstract: | In this article, we examine the regulation of pollution in open economies when the regulator is influenced by special interest groups. In a setting with free trade, we identify conditions under which a country may unilaterally adopt the stricter regulatory standards of its competitors. In our model, two lobby groups - representing industrial and environmental special interests - influence their government's policy decision. Their lobbying efforts not only depend on the domestic policy, but also on environmental regulation abroad. We find that both market structure and the characteristics of the pollutant are crucial determinants of the political equilibrium: given a local pollutant, the probability of convergence of environmental policies is increasing in the stringency of regulation abroad when product supply is relatively inelastic. This effect is reversed in the case of transboundary pollution. We also extend our framework to cases of imperfect competition. |
| JEL: | Q50 H73 D72 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113132&r=reg |
| By: | Bialek, Sylwia; Weichenrieder, Alfons J. |
| Abstract: | This study examines how environmental stringency affects the location decision of foreign direct investments. We analyze a fi rm-level data set on German outbound FDI and innovate on previous studies by controlling for the mode of entry and applying a mixed-logit analysis. The results show that Greenfi eld projects react to environmental regulation in a strongly different way than M&As. We fi nd robust support for pollution haven hypothesis for polluting Green fields. M&A investments in low polluting industries, on the other hand, seem to be attracted by stricter environmental regulation. We introduce a novel instrumental variable for environmental stringency and apply it to verify the results. |
| JEL: | Q50 F20 Q58 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113179&r=reg |
| By: | Vance, Colin; Frondel, Manuel |
| Abstract: | Using household travel diary data collected in Germany between 1997 and 2012, we employ an instrumental variable (IV) approach that enables us to consistently estimate both fuel price and efficiency elasticities at once. The aim is to gauge the relative impacts of fuel economy standards and fuel taxes on distance traveled. We find that the magnitude 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. The ecological implications of this legislation for emissions reductions is explored through a simple numerical simulation using the econometric estimates. |
| JEL: | D12 C36 Q41 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:113171&r=reg |
| By: | Stiel, Caroline; Cullmann, Astrid; Nieswand, Maria |
| Abstract: | This paper examines firm-level productivity for German electricity retailers using a structural production function approach. The sector was subject to fundamental changes in market structure after retail liberalization in 1998. Competition was supposed to increase productivity and reduce retail prices. Despite increased competition, public firms are still accused of being less productive than private firms, although empirical evidence is missing. Based on a theory-driven robust empirical model we test the hypothesis whether ownership has a significant impact on the retailers' productivity. We derive an innovative production function for the retail sector using labour and external services as main inputs. Our econometric model builds on the recently developed control function approach which allows us to correct for the bias which arises when unobserved factors (such as the firm level productivity) are correlated with input choice. We use a proxy function for productivity which relies on deflated expenditure for external services and control for the effect of ownership in the law of motion for productivity. We use a new and unique dataset on German utilities provided by the German Federal Statistical Office which covers the years 2003 to 2012. Empirical results show that firm-level productivity increased during 2004 and 2008 but fell after 2009. We do not find any evidence for ownership having an impact on productivity. |
| JEL: | D24 C23 L94 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112954&r=reg |
| By: | Zerrahn, Alexander; Krekel, Christian |
| Abstract: | This paper investigates the effect of wind turbines on residential well-being in Germany, using panel data from the German Socio-Economic Panel (SOEP) and a unique, novel data set on wind turbines for the time period between 2000 and 2012. Using a Geographical Information System (GIS), it calculates the distance from households to the nearest wind turbines to determine whether an individual is affected by disamenities, e.g. through visual pollution. The depth of our unique, novel data set on wind turbines, which has been collected at the regional level and which includes, besides their exact geographical coordinates, their construction dates, allows estimating the causal effect of wind turbines on residential well-being, using difference-in-difference propensity-score and spatial matching techniques. We demonstrate that the construction of a new wind turbine in a treatment area of 4000 metres around households has a significantly negative impact on life satisfaction. Moreover, this effect is found to be of transitory nature. Contrasting the implicit monetary valuation with the damage through CO2 emissions avoided by wind turbines, wind power turns out to be a favorable technology despite robust evidence for negative externalities. |
| JEL: | C23 Q51 R20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc15:112956&r=reg |
| By: | Holmberg, Pär (Research Institute of Industrial Economics (IFN)); Wolak, Frank A. (Program on Energy and Sustainable Development (PESD) and Department of Economics, Stanford University) |
| Abstract: | We analyse how the market design influences the bidding behaviour in multi-unit auctions, such as wholesale electricity markets. It is shown that competition improves for increased market transparency and we identify circumstances where the auctioneer prefers uniform to discriminatory pricing. We note that political risks could significantly worsen competition in hydro-dominated markets. It would be beneficial for such markets to have clearly defined contingency plans for extreme market situations. |
| Keywords: | cost uncertainty; asymmetric information; uniform-price auction; discriminatory pricing; Bertrand game; market transparency; wholesale electricity market; treasury auction; Bayesian Nash equilibria |
| JEL: | C72 D43 D44 L13 L94 |
| Date: | 2015–12–18 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1099&r=reg |
| By: | David Comerford (Division of Economics, University of Stirling); Ian Lange (Division of Economics and Business, Colorado School of Mines); Mirko Moro (Division of Economics, University of Stirling) |
| Keywords: | energy efficiency, bunching, labels, thresholds |
| JEL: | Q48 L15 Q58 H23 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:mns:pbrief:wp2016-01&r=reg |