nep-reg New Economics Papers
on Regulation
Issue of 2016‒04‒30
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Bridging the Industrial Energy Efficiency Gap: Assessing the Evidence from the Italian White Certificate Scheme By Jan Stede
  2. Environmental Regulation and Choice of Innovation in Oligopoly By Iwata, Hiroki
  3. Cross-Border M&As and Eco-Environmental Performance of European Energy Utilities By Evgenii Monastyrenko
  4. Extending the EU Commission’s Proposal for a Reform of the EU Emissions Trading System By Schleicher, Stefan P.; Köppl, Angela; Zeitlberger, Alexander
  5. Cap and trade markets for groundwater: Efficiency and distributional effects of the permit allocation mechanism By Gao, Yang; Williams, Ryan Blake; Mitchell, Donna M.
  6. Strategic Subsidies for Green Goods By Fischer, Carolyn
  7. Reviewing the evidence on the innovation impact of the EU Emission Trading System By Karoline Rogge
  8. Incentive Contracts and Downside Risk Sharing. By Bernard Sinclair-Desgagné; Sandrine Spaeter
  9. Fuel Poverty: a Matter of Household Resources or a Matter of Dwelling Efficiency? By Watson, Dorothy; Maître, Bertrand
  10. Regulatory management practices in OECD countries By Isabell Koske; Faisal Naru; Philipp Beiter; Isabelle Wanner
  11. Auction-Based Allocation of Shared Electricity Storage Resources through Physical Storage Rights By Tom Brijs; Daniel Huppmann; Sauleh Siddiqui; Ronnie Belmans
  12. Where Does the Wind Blow? Green Preferences and Spatial Misallocation in Renewable Energy Sector By Yatang Lin

  1. By: Jan Stede
    Abstract: The Italian white certificate scheme is the main national policy instrument to incentivise energy efficiency of the industrial sector. The mechanism sets binding energy-saving targets on electricity and gas distributors with at least 50,000 clients and includes a voluntary opt-in model for participation from other parties. This paper investigates and assesses the elements of the scheme that help overcome several barriers to deliver industrial energy efficiency. Results from a survey conducted among leading experts indicate that the Italian system provides a strong financial incentive to energy efficiency investments, covering a significant share of investment costs and thus reducing payback time. Moreover, the scheme fosters the development of energy service companies (ESCOs), which are key to developing, installing and arranging finance for projects on the ground. In conjunction with other policies, the mechanism also raises awareness of energy efficiency investment opportunities, thus helping overcome the market failure of insufficient information. Core challenges remain, including tackling regulatory uncertainty and improving access to finance.
    Keywords: White certificates, energy efficiency obligations, financial incentives, policy evaluation, ESCOs, industrial energy savings, market barriers
    JEL: D22 D82 L14 L97 Q48
    Date: 2016
  2. By: Iwata, Hiroki
    Abstract: This study investigates the effect of an environmental regulation on the innovation choice of firms in an oligopoly. Most existing studies on environmental regulations and innovations examine the optimal behavior of firms when one innovation project is feasible. In our model, firms are allowed to choose from multiple types of innovation projects. Our main contributions are that we derive the conditions under which environmentally friendly and cost reducing innovations are selected in Bertrand competition and we show how environmental regulation affects innovation choice.
    Keywords: environmental regulation; innovation; the Porter hypothesis
    JEL: D21 Q55 Q58
    Date: 2016–03–25
  3. By: Evgenii Monastyrenko
    Abstract: European electricity industry has recently come through liberalization. Surge of intakes with high share of cross-border deals was market players’ response. Measuring of post-merger performance alterations is a central question of M&A literature. EU energy sector is responsible for significant part of global greenhouse gas emissions. Its efficiency should be regarded with respect to ecological dimension. This study addresses combined economic and environmental performance of 15 biggest European energy producers in 2005-2013. I exploit Data envelopment analysis (DEA) with CO2 as an undesirable output. Panel fractional regression model with financial controls is used to isolate effects of completed mergers. Results suggest that in short term firms profit from selling their subsidiaries to foreign counter-parties. This effect doesn’t sustain over time. Same-type domestic deals are detrimental in short run, but performance-enhancing in long term. Domestic and cross-border acquisitions immediately damage performance. Later ones stimulate efficiency in the long run.
    Keywords: Mergers and acquisitions, Firm performance, Data envelopment analysis, Fractional regression model, Electric power industry, Carbon dioxide emissions
    JEL: F21 G34 L25 L94 D24
    Date: 2016–03
  4. By: Schleicher, Stefan P.; Köppl, Angela; Zeitlberger, Alexander
    Abstract: Pursuing an evidence based approach we summarize the key elements of the European Commission’s proposal of July 2015 for a reform of the EU Emissions Trading System and offer facts about the current state of EU ETS that underline the needs for such a reform. We supply key data for understanding the current state of EU ETS and report in particular the share of freely allocated allowances in emissions for the various sectors since the start of EU ETS in 2005. This is the most relevant parameter for evaluating the stringency and cost impacts of the EU ETS on sectors and installations. We provide propositions for enhancing the allocation procedure of both free and auctioned allowances, the fundamental element in the cap and trade design of this system. We link this procedure closely to the relevant suggestions of the Commission proposal and offer extensions that can make in particular the allocation of free allowances more targeted and effective. We indicate how the impacts of free allowances can be calculated both for sectors and installations and conclude that these reform steps could reduce the administrative burden of the system.
    Keywords: EU Emissions Trading System, Reform Options, EU Commission’s Proposal, Environmental Economics and Policy, Q53, Q54,
    Date: 2016–04–15
  5. By: Gao, Yang; Williams, Ryan Blake; Mitchell, Donna M.
    Abstract: Agricultural production on the Texas High Plains is heavily dependent on the Ogallala Aquifer, which accounts for approximately 95 percent of groundwater pumped. Rapid groundwater depletion has been observed in the Ogallala Aquifer, which is attributed to low recharge rates and high water withdrawals. In an effort to manage this limitedly-renewable water resource, High Plains Water Conservation District (HPWD) No.1 has established a rule to reduce pumping 1.25 acre-feet per acre per year for all groundwater users within HPWD. This research evaluates the efficiency and distributional effects of a “cap and trade” mechanism for the HPWD region under alternative methods of allocating the allowable groundwater use: an equal distribution rule and a uniform percentage reduction rule. Marginal abatement curves are derived from producer profit functions, which include four irrigated and three rain fed crops. Optimal cropping choices, water use, water permit trades, and water permit prices are estimated simultaneously by maximizing producer profits. The relative efficiency of the programs are evaluated by comparing total producer profits. The results shows that the equal distribution cap will result in a more efficient use of groundwater resources, while the uniform percentage reduction cap will result in less wealth redistribution.
    Keywords: Cap and Trade, Water Markets, Groundwater, Environmental Economics and Policy, Resource /Energy Economics and Policy, Q15, Q18, Q2, Q38,
    Date: 2016
  6. By: Fischer, Carolyn
    Abstract: Globally and locally, government support policies for green goods (like renewable energy) are much more popular internationally than raising the cost of bads (as through carbon taxes). These support policies may encourage downstream consumption (renewable energy deployment) or upstream development and manufacturing of those technologies. The use of subsidies—particularly upstream ones—is disciplined by World Trade Organization agreements, and its subsidies code lacks exceptions for transboundary externalities like human health or resource conservation, including those related to combating global climate change. The strategic trade literature has devoted little attention to the range of market failures related to green goods. This paper considers the market for a new environmental good that when consumed downstream may provide external benefits like reduced emissions. The technology is traded internationally but provided by a limited set of upstream suppliers that may operate in imperfect markets, such as with market power or external scale economies. We examine the national incentives and global rationales for offering production and consumption subsidies in producer countries, allowing that some of the downstream market may lie in nonregulating third-party countries. Although technology producer countries can benefit from restraints on upstream subsidies, global welfare is higher without them, and market failures imply that optimal subsidies are even higher. We supplement the analysis with numerical simulations of the case of renewable energy, exploring optimal subsidies for the major renewable energy producing and consuming regions and the cost of restrictions on upstream subsidies.
    Keywords: International Trade, Subsidies, Imperfect Competition, Externalities, Emissions Leakage, Environmental Economics and Policy, F13, F18, H21, Q5,
    Date: 2016–04–15
  7. By: Karoline Rogge (SPRU – Science Policy Research Unit, University of Sussex, Brighton BN1 9SL, UK; Fraunhofer Institute for Systems and Innovation Research (Fraunhofer ISI), Karlsruhe, Germany)
    Abstract: The Paris Climate Agreement calls for decarbonization of the economy in the second half of this century. This requires a radical redirection and acceleration of technological change towards low- and particularly zero-carbon solutions. Global carbon pricing is seen as a key enabler for such decarbonization, with the European Union’s Emission Trading System (EU ETS) serving as an important pillar. In this paper, I therefore re-view the evidence on the innovation impact of the EU ETS. The review shows a very limited effect of the scheme on technological innovation, but there are clear signs of it having stimulated organizational innovation, with the impact being more pronounced for the electricity sector than for industry. The initially high expectations of the EU ETS regarding technological innovation largely dissipated once the scheme’s lack of strin-gency became apparent and prices collapsed accordingly. Also, for many of the rather incremental innovations that have taken place, the EU ETS was shown to be only one contributing factor among others, with the broader policy mix and long-term targets playing a particularly pivotal role in stimulating innovation. In contrast, there is clear evidence that the EU ETS has been a key driver of various organizational innovations, including making climate change a top management issue. However, so far, these or-ganizational innovations have only had limited effects on shifting corporate strategies towards low-carbon solutions because of low carbon prices, the relatively high share of free allocations in industry, and more pressing business concerns. Despite this, the scheme’s positive impact on organizational innovations should not be underestimated, as these constitute a necessary precondition for future technological innovations. The findings suggest that the Commission’s proposal for the fourth trading period of the EU ETS points in the right direction, but further efforts will be needed to significantly in-crease the scarcity of EU allowances and the share of auctioning in order to fully un-leash the scheme’s transformative power. If the identified shortcomings are not ad-dressed, the EU ETS cannot play its foreseen role in guiding the decarbonization of the European economy, for which innovations in low-carbon solutions are a fundamental requirement.
    Keywords: climate policy, emission trading, EU ETS, innovation
    JEL: O31 O38 Q54 Q55 Q58
    Date: 2016–09
  8. By: Bernard Sinclair-Desgagné; Sandrine Spaeter
    Abstract: This paper seeks to characterize incentive compensation in a principal-agent moral hazard setting in which the principal is prudent, or downside risk averse, as many situations (such as that of a patient in hospital or a regulator dealing with food safety) suggest she should be. We show that optimal incentive pay should then be 'approximately concave' in performance, the approximation being closer the more downside risk averse the principal is compared to the agent. Limiting the agent's liability would improve the approximation, but taxing the principal would make it coarser. The notion of an approximately concave function we introduce here to describe the pay-performance relationship is relatively recent in mathematics; it is intuitive and translates into concrete empirical implications, notably for the composition of incentive pay. We also clarify which measure of prudence - among the various ones proposed in the literature - is relevant to investigate the tradeoff between downside risk sharing and incentives.
    Keywords: Pay-performance relationship; executive compensation; downside risk aversion; approximate concavity.
    JEL: D82 M12 M52
    Date: 2016
  9. By: Watson, Dorothy; Maître, Bertrand
    Date: 2015–05
  10. By: Isabell Koske; Faisal Naru; Philipp Beiter; Isabelle Wanner
    Abstract: This paper provides analysis of the regulatory governance of network sector regulators in electricity, gas, telecommunications, rail, airport and ports within the OECD as it stood in 2013. The paper explores the governance arrangements of network sector regulators as described by law and analyses key institutional characteristics of network sector regulators such as appointments of board members, to whom regulators are formally accountable to, and what functions are most carried out by regulators. The paper also includes a new set of indicators on the regulatory management of the network sectors in terms of their independence, accountability and scope of action, reflecting the OECD Best Practice Principles on Regulatory Policy for the Governance of Regulators and as part of the updated 2013 Product Market Regulation (PMR) Indicators. Pratiques de gestion réglementaire dans les pays de l'OCDE Ce document fournit une analyse, au sein de l'OCDE, de la gouvernance des organismes de réglementation en vigueur en 2013 dans les secteurs de réseau, électricité, gaz, télécommunications, transport ferroviaire, aéroport et ports. Le document explore les modalités de gouvernance des organismes de réglementation des secteurs de réseau, comme décrit par la loi et analyse les caractéristiques institutionnelles fondamentales de ces organismes telles que les nominations des membres du conseil d'administration, auxquels les régulateurs doivent formellement rendre compte, et les fonctions le plus effectuées par les organismes de réglementation. Le document comprend également une nouvelle série d'indicateurs sur la gestion de la réglementation dans les industries de réseau en fonction de leur indépendance, leur responsabilité et la portée de leur action fondée sur le principe des meilleures pratiques de l'OCDE en terme de politique réglementaire pour la gouvernance des organismes de réglementation ; ces indicateurs s’inscrivent dans le cadre de la mise à jour 2013 des indicateurs de réglementation du marché des produits (RMP).
    Keywords: electricity, gas, regulators, economic regulator, regulatory powers, pouvoirs de réglementation, organismes de réglementation, électricité, organismes de réglementation économique, gaz
    JEL: K2 L5
    Date: 2016–04–19
  11. By: Tom Brijs; Daniel Huppmann; Sauleh Siddiqui; Ronnie Belmans
    Abstract: This article proposes a new electricity storage business model based on multiple simultaneously considered revenue streams, which can be attributed to different market activities and players. These players thus share electricity storage resources and compete to obtain the right to use them in a dynamic allocation mechanism. It is based on the design of anew periodically organized auction to allocate shared storage resources through physical storage rights between different market players and ac-companying applications. Through such a flexibility platform owners of flexible resources can commercialize their flexible capacity over different applications, while market players looking for additional flexibility can obtain this through a pay-per-use principle and thus not having to make long-term investment commitments. As such, they can quickly adapt their portfolio according to the market situation. Alternatively, through such an allocation mechanism players can effectively share storage re-sources. Players may be incentivized to participate as they can share the investment cost, mitigate risk, exploit economies of scale, overcome regulatory barriers, and merge time-varying and player-dependent flexibility needs. The mechanism allocates the limited storage resources to the most valuable application for each market-clearing, based on the competing players' willingness-to-pay. An illustrative case study is provided in which three players share storage resources that are allocated through a daily auction with hourly market-clearings.
    Keywords: electricity storage, shared storage resources, auction-based allocation, (Generalized) Nash Equilibrium, Mixed Complementarity Problem
    Date: 2016
  12. By: Yatang Lin
    Abstract: Are "greener" investments less efficient? This paper looks at the location choices by wind power investors. I measures the efficiency loss in this sector due to wrong project location and explore the factors contributing to it. Using extensive information on wind resources, transmission, electricity price and other restrictions that might affect the siting of wind farms, I calculate the predicted profitability of wind power projects for all the possible places across the contiguous US, use it as a counterfactual for profit-maximizing wind power investment and compare it to the actual placement of wind farms.
    Keywords: Spatial misallocation, renewable energy policies, productivity, green preferences
    JEL: R12 R38 Q42 Q48
    Date: 2016–04

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