nep-reg New Economics Papers
on Regulation
Issue of 2016‒06‒18
eleven papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Carbon Taxes and Feed-in Tariffs: Using Screening Curves and Load Duration to Determine the Optimal Mix of Generation Assets By G. Cornelis van Kooten; Rachel Lynch; Jon Duan
  2. Climate change policy and power sector reform in Mexico under the .golden age of gas. By José Maria Valenzuela; Isabel Studer
  3. Establishing Mexico's Regulatory Agency for Rail Transport: Peer Review of Regulatory Capacity By OECD
  4. Regulatory Holidays and Optimal Network Expansion By Willems, Bert; Zwart, Gijsbert
  5. Is there a Future for Nuclear Power? Wind and Emission Reduction Targets in Alberta By G. Cornelis van Kooten; Rachel Lynch; Jon Duan
  6. Testing for the Ratchet Effect: Evidence from a Real-Effort Work Task By Cardella, Eric; Depew, Briggs
  7. Exploring the Implications of GHG Reduction Targets for Agriculture in the United Kingdom and Ireland By Lynch, John; Donnellan, Trevor; Hanrahan, Kevin
  8. Analyzing the Impact of Electricity Market Structure Changes and Mergers: The Importance of Forward Commitments By Brown, David P.; Eckert, Andrew
  9. The political economy of clean energy transitions at sub-national level Understanding the role of international climate regimes in energy policy in two Brazilian states By Jose de Oliveira; Celio Andrade
  10. Does Climate Aid Affect Emissions? Evidence from a Global Dataset By Sambit Bhattacharyya; Maurizio Intartaglia; Andy McKay
  11. The political economy of energy innovation By Shouro Dasgupta,; Enrica De Cian; Elena Verdolini

  1. By: G. Cornelis van Kooten; Rachel Lynch; Jon Duan
    Abstract: Mitigating climate change will require reduced use of fossil fuels to generate electricity. To do so and eschewing nuclear power, countries have turned to wind energy. In this study, we discuss how screening curves and load duration can be used to determine the optimal investment in generating assets, and extend this method to include wind and nuclear energy sources. We then use this approach to investigate the effects of carbon taxes and feed-in tariffs (FITs) on the optimal generation mix and the potential for reducing CO2 emissions. We find that a carbon tax is likely more effective than a feed-in tariff for removing fossil fuel assets and incentivizing investment in wind power. The tax leads to the removal of coal-fired capacity that is replaced by combined-cycle gas generation. However, if nuclear energy is permitted to enter the mix, the tax results in coal capacity replaced by nuclear power instead of gas, which leads to a significant reduction in greenhouse gas emissions compared to any other alternative considered. We also find that, because wind cannot substitute for baseload generation, the additional investment in wind resulting from a carbon tax or FIT is small compared to the absence of any incentives (only 7%). Finally, if the tax and FIT lead to the same mix of generating assets, the income distributional effects can be quite large. It is the distributional effects of policy, and associated rent seeking activities to implement a FIT, that could be the deciding factor in choosing between a carbon tax and feed-in tariff.
    Keywords: Electricity; renewable energy and climate change policy; wind power; nuclear energy
    JEL: H41 L51 L94 Q42 Q48 Q54
    Date: 2016–06
  2. By: José Maria Valenzuela; Isabel Studer
    Abstract: Mexico.s low-carbon technology perspectives show lack of coherence with the rising ambition in climate change commitments, for which Mexico is internationally praised. The comparison of two recent energy reforms, corresponding to two administrations, explains this lack of coherence by, on the one hand, the permanence of a strong climate institutional framework devised as a means to increase energy security and, on the other hand, the political commitment to reduce electricity tariffs through the access to low-priced gas in North America. This paper underscores the political economy trade-offs between the need for a strong climate commitment that provides a stable long-term energy transition pathway and the political and economic short-term benefits derived from low electricity tariffs.
    Keywords: power sector, climate change, renewable energy, natural gas, market reform, energy transition
    Date: 2016
  3. By: OECD
    Abstract: Mexico’s highly efficient freight railways are operated by privately owned concessions. The system adopted for the concessions by the 1995 Railway Law provides exclusive rights to manage vertically integrated track and train companies over specified sections of the network and was designed to create competition between the companies in key markets. Competition is provided for in several ways; through parallel tracks, through alternate routes and through rights to use each other’s tracks on specific sections of the network. In this report, preparations for the establishment of the new rail regulatory agency are reviewed and compared to comparable regulatory arrangements in other OECD countries to ensure effective implementation of the new institutional arrangements.
    Date: 2016–02–01
  4. By: Willems, Bert (Tilburg University, TILEC); Zwart, Gijsbert (Tilburg University, TILEC)
    Abstract: We model the optimal regulation of continuous, irreversible, capacity expansion, in a model in which the regulated network firm has private information about its capacity costs, investments need to be financed out of the firm’s cash flows from selling network access and demand is stochastic. If asymmetric information is large, the optimal mechanism consists of a regulatory holiday for low-cost firms, and a mark-up regime for higher-cost rms. With the regulatory holiday, a firm receives the full revenue of capacity sales, and expands capacity as if it were an unregulated monopolist. Under the mark-up regime, a firm receives only a fraction of the capacity revenues, and is obliged to expand capacity whenever the price for capacity reaches a threshold. The regulatory holiday is necessary to fund information rents to the most efficient firms, which invest relatively early, as direct investment subsidies are not feasible.
    Keywords: regulatory holiday; real option value; asymmetric information; optimal contracts
    JEL: D81 D82 L52
    Date: 2016
  5. By: G. Cornelis van Kooten; Rachel Lynch; Jon Duan
    Abstract: This paper explores the viability of relying on wind power to replace upwards of 60% of electricity generation in Alberta that would be lost if coal-fired generation is phased out. Using hourly wind data from 17 locations across Alberta, we are able to simulate the potential wind power output available to the Alberta grid when modern, 3.5 MW-capacity wind turbines are spread across the province. Using wind regimes for the years 2006 through 2015, we find that available wind power is less than 60% of installed capacity 98% of the time, and below 30% of capacity 74% of the time. In addition, although there is insignificant correlation between wind speeds at different locations, it will still be necessary to rely on fossil fuel generation because winds are generally too variable and weak to replace reliable sources of power. Then, based on the results from a grid allocation model, we find that CO2 emissions can be reduced by about 30%, but only through a combination of investment in wind energy and reliance on purchases of hydropower from British Columbia. Only if nuclear energy is permitted into the generation mix would Alberta be able to meet its CO2-emissions reduction target in the electricity sector. With nuclear power, emissions can be reduced by upwards of 85%.
    Keywords: Electricity; renewable energy and climate change; wind power; intermittent energy; nuclear power
    JEL: H41 L51 L94 Q42 Q48 Q54
    Date: 2016–06
  6. By: Cardella, Eric (Texas Tech University); Depew, Briggs (Louisiana State University)
    Abstract: The "ratchet effect" refers to a phenomenon where workers whose compensation is based on productivity strategically restrict their output, relative to their capability, because they rationally anticipate that high levels of output will be met with increased or "ratcheted-up" expectations in the future. While there is ample anecdotal evidence suggesting the presence of the ratchet effect in real workplaces, it is difficult to actually empirically identify output restriction among workers. In this study, we implement a novel experimental design using a real-effort work task and a piece-rate incentive scheme to directly test for the presence of the ratchet effect using two different methods for evaluating productivity: (i) when productivity is evaluated based on the output of each individual worker, and (ii) when productivity is evaluated collectively based on the output of a group of workers. We find strong evidence of the ratchet effect when productivity is evaluated at the individual-level. However, we find very little evidence of the ratchet effect when productivity is evaluated collectively at the group-level. We attribute the latter result to the free-riding incentive that emerges when productivity is evaluated at the group-level. Furthermore, we find the ratchet effect re-emerges if workers are able to communicate. Our experimental design, combined with using a real-effort work task, also allows us to shed light on an important dynamic implication of the ratchet effect that has not yet been examined in the literature – the role of the ratchet effect on future productivity via learning-by-doing.
    Keywords: ratchet effect, output restriction, piece-rate pay, real-effort task, learning-by-doing
    JEL: J30 J40 D70 D01 C92
    Date: 2016–06
  7. By: Lynch, John; Donnellan, Trevor; Hanrahan, Kevin
    Abstract: The UK and Ireland both have large greenhouse gas (GHG) reduction targets under the EU Effort Sharing Decision (ESD). The ESD covers non-emission trading sector (Non-ETS) emissions, of which agriculture is an important component, representing 44% of the non-ETS emissions for Ireland. In the UK this figure is lower, at 16%, but the composition varies significantly between the constituent countries. Though the reductions targets and means of achieving them differ, reductions in agricultural emissions will be necessary for both the UK and Ireland, and on-going negotiations setting reductions targets for 2030 are likely to result in even stricter limits for emissions from the non ETS sector. This paper examines the implications of achievement of possible 2020 and 2030 GHG reductions targets in the agriculture sector for the UK and Ireland. The paper considers the achievability of the reduction targets based on technical means alone, suggesting that under current carbon budgets the UK aims to make sufficient agricultural emissions reductions, while Ireland will require a reduction in agricultural activity or alternative policy interventions. The implications for food production in the UK and Ireland and associated trade are then assessed.
    Keywords: Climate change, agricultural production, agricultural trade, Agricultural and Food Policy, Environmental Economics and Policy, Q100 Agriculture: General, Q54 Global Warming,
    Date: 2016–04
  8. By: Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics)
    Abstract: We investigate how the effects of market structure changes and mergers in restructured electricity markets depend on the level of forward contracting. Following Bushnell, Mansur, and Saravia (2008), we develop a Cournot model of Alberta's wholesale electricity market that incorporates firms' forward positions. Using data from 2013 - 2014, we estimate the monthly forward positions of the five largest firms in the market, and simulate the effects of different market structure changes, including variations of a hypothetical merger with asset divestitures. We examine the sensitivity of the simulated effects of mergers and other market structure changes to assumptions regarding firms' forward commitments. We demonstrate that the wholesale market impacts of mergers and market structure changes depend critically on firms' forward commitments in the post market structure change equilibrium. Our paper demonstrates the importance of establishing a clear understanding of the size and nature of forward commitments in forecasting the effects of mergers and other market structure changes in wholesale electricity markets.
    Keywords: Electricity; Mergers; Forward Contracts; Market Power
    JEL: D43 L40 L51 L94 Q40
    Date: 2016–06–13
  9. By: Jose de Oliveira; Celio Andrade
    Abstract: This paper examines the political economy aspects, particularly the influence of the Clean Development Mechanism, in clean energy and climate change policies in the states of Bahia and Rio Grande do Sul in Brazil. The different mechanisms for responding to climate change are financing opportunities in some of the .green. industries, but the results show a gap between the initial objectives of global policies and their results.The research identified pitfalls and opportunities for new strategies and mechanisms for boosting clean energy in Brazil and the role that the Clean Development Mechanism and future mechanisms can play in the political economy of clean energy transitions. The paper concludes with a discussion on the lessons learned from experience of the Clean Development Mechanism and its implications for the future of the Paris Agreement.
    Keywords: Climatic changes, Renewable energy sources, Sustainable development
    Date: 2016
  10. By: Sambit Bhattacharyya; Maurizio Intartaglia; Andy McKay
    Abstract: We perform an empirical audit of the effectiveness of climate aid in tackling CO2 and SO2 emissions. Using a global panel dataset covering up to 131 countries over the period 1961 to 2011 and estimating a parsimonious model using the Anderson and Hsiao estimator we do not find any evidence of a systematic effect of energy related aid on emissions. We also find that the non-effect is not conditional on institutional quality or level of income. Countries located in Europe and Central Asia does better than others in utilising climate aid to reduce CO2 emissions. Our results are robust after controlling for the Environmental Kuznets Curve, country fixed effects, country specific trends, and time varying common shocks.
    Keywords: Climate Aid; Emissions; Energy
    JEL: D72 O11
    Date: 2016
  11. By: Shouro Dasgupta,; Enrica De Cian; Elena Verdolini
    Abstract: This paper empirically investigates the effects of environmental policy, institutions, political orientation, and lobbying on energy innovation and finds that they significantly affect the incentives to innovate and create cleaner energy efficient technologies. We conclude that political economy factors may act as barriers even in the presence of stringent environmental policy, implying that, to move towards a greener economy, countries should combine environmental policy with a general strengthening of institutional quality, consider the influence of government's political orientation on environmental policies, and the implications of the size of energy intensive sectors in the economy.
    Keywords: energy innovation, environmental policy, patents, political economy
    Date: 2016

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