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on Regulation |
| By: | Hagfors, Lars Ivar; Kamperud , Hilde Horthe; Paraschiv, Florentina; Prokopczuk, Marcel; Sator, Alma; Westgaard, Sjur |
| Abstract: | Understanding the mechanisms that drive extreme negative and positive prices in day-ahead electricity prices is crucial for managing risk and market design. In this paper, we consider the problem of understanding how fundamental drivers impact the probability of extreme price occurrences in the German day-ahead electricity market. We develop models using fundamental variables to predict the probability of extreme prices. The dynamics of negative prices and positive price spikes differ greatly. Positive spikes are related to high demand, low supply, and high prices the previous days, and mainly occur during the morning and afternoon peak hours. Negative prices occur mainly during the night, and are closely related to low demand combined with high wind production levels. Furthermore, we do a closer analysis of how renewable energy sources, hereby photovoltaic and wind power, impact the probability of negative prices and positive spikes. The models confirm that extremely high and negative prices have different drivers, and that wind power is particularly important in relation to negative price occurrences. The models capture the main drivers of both positive and negative extreme price occurrences, and perform well with respect to accurately forecasting the probability with high levels of confidence. Our results suggests that probability models are well suited to aid in risk management for market participants in day-ahead electricity markets. |
| Keywords: | Energy Markets, Fundamental Analysis, Spikes, EPEX |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2016:22&r=reg |
| By: | Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics); Eckert, Heather (University of Alberta, Department of Economics) |
| Abstract: | In this paper, we examine the use of carbon pricing and an output-based subsidy in a market with imperfect competition. We consider a carbon pricing policy in Alberta's electricity market as a case study. This policy consists of two phases. In the first phase, the carbon price is doubled with the output subsidy being based on a fraction of facility-level emission intensity. In the second phase, the carbon price will remain constant, while the output subsidy is altered to be uniform across assets and based on the emissions intensity of an efficient natural gas asset. Using a model of oligopoly competition, we simulate the short-run impacts of the two phases on electricity prices, emissions, and unit and firm-level profitability. We find that the mechanisms by which electricity prices and emissions change in response to carbon pricing differ depending on whether the market is perfectly competitive or oligopolistic. We demonstrate that regardless of market structure, changing the basis of the output subsidy has substantially larger effects than a doubling of the carbon price. The estimated effects of carbon pricing vary as the firms' generation portfolios change. |
| Keywords: | Electricity; Market Power; Carbon Price; Pass-Through |
| JEL: | D43 L51 L94 Q40 Q58 |
| Date: | 2017–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2017_001&r=reg |
| By: | André, Francisco J. (Departamento de Análisis Económico. Universidad Complutense de Madrid.); Arguedas, Carmen. (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.) |
| Abstract: | In this paper we study the relationship between market power in emission permit markets and endogenous technology adoption. The presence of market power results in a di- vergence of both abatement and technology adoption levels with respect to the benchmark scenario of perfect competition, as long as technology adoption becomes more e¤ective in reducing abatement costs. Also, the initial distribution of permits, in particular, the amount of permits initially given to the dominant rm, is crucial in determining over- or under-investment in relation to the benchmark model. Speci cally, if the dominant rm is initially endowed with more permits than the corresponding cost e¤ective allocation, this results in under- investment by the dominant rm and over- investment by the competitive fringe, regardless of the speci c amount of permits given to the latter rms. The results are reversed if the dominant rm is initially endowed with relatively few permits. Our ndings seem consistent with some empirical evidence about the performance of the power sector in the initial phases of the European Union Emission Trading System. |
| Keywords: | environmental policy, emission permits, market power, environmentally-friendly technologies |
| JEL: | C72 D43 D62 L51 Q55 Q58 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201701&r=reg |
| By: | Tomas Balint (Université Panthéon-Sorbonne - Paris 1 (UP1)); Francesco Lamperti (Université Panthéon-Sorbonne - Paris 1 (UP1)); Mauro Napoletano (Observatoire français des conjonctures économiques); Antoine Mandel (Ecole d'Économie de Paris - Paris School of Economics); Andrea Roventini (Laboratory of Economics and Management (Pisa) (LEM)); Sandro Sapio (Università degli Studi di Napoli Parthenope) |
| Abstract: | We provide a survey of the micro and macro economics of climate change from a complexity science perspective and we discuss the challenges ahead for this line of research. We identify four areas of the literature where complex system models have already produced valuable insights: (i) coalition formation and climate negotiations, (ii) macroeconomic impacts of climate-related events, (iii) energy markets and (iv) diffusion of climate-friendly technologies. On each of these issues, accounting for heterogeneity, interactions and disequilibrium dynamics provides a complementary and novel perspective to the one of standard equilibrium models. Furthermore, it highlights the potential economic benefits of mitigation and adaptation policies and the risk of under-estimating systemic climate change-related risks. |
| Keywords: | Climate change; Climate policy; Climate economics; Complex systems; Agent-based models; Socio-economics networks |
| JEL: | C63 Q40 Q50 Q54 |
| Date: | 2016–07 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5qr7f0k4sk8rbq4do5u6v70rm0&r=reg |
| By: | Michael Bucksteeg; Stephan Spiecker; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen)) |
| Abstract: | There is an ongoing debate on the introduction of capacity markets in most European countries while a few of them have already established capacity markets. Since the implementation of independent national capacity markets is not in line with the target of a pan-European internal electricity market we investigate the impacts of uncoordinated capacity markets compared with coordinated capacity markets. A probabilistic approach for the determination of capacity requirements is proposed and a European electricity market model (E2M2s) is applied for evaluation. The model simultaneously optimizes investments and dispatch of power plants. Besides the impact on generation investments, market prices and system costs we analyse effects on production and security of supply. While coordinated capacity markets reveal high potentials for cross border synergies and cost savings, uncoordinated and unilateral implementations can lead to inefficiencies, in particular free riding effects and endanger security of supply due to adverse allocation of generation capacity. |
| Keywords: | capacity markets, system adequacy, market design |
| JEL: | Q40 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:dui:wpaper:1701&r=reg |
| By: | Steve Cicala |
| Abstract: | This paper measures changes in electricity generation costs caused by the introduction of market mechanisms to determine output decisions in service areas that were previously using command-and-control-type operations. I use the staggered transition to markets from 1999- 2012 to evaluate the causal impact of liberalization using a nationwide panel of hourly data on electricity demand and unit-level costs, capacities, and output. To address the potentially confounding effects of unrelated fuel price changes, I use machine learning methods to predict the allocation of output to generating units in the absence of markets for counterfactual production patterns. I find that markets reduce production costs by $3B per year by reallocating output among existing power plants: Gains from trade across service areas increase by 20% based on a 10% increase in traded electricity, and costs from using uneconomical units fall 20% from a 10% reduction in their operation. |
| JEL: | D4 D61 L1 L5 L94 Q4 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23053&r=reg |
| By: | Heesen, Florian (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)) |
| Abstract: | In Germany, policy-induced energy efficiency improvements typically aim at reducing primary energy consumption. Private households, on the contrary, pursue the maximization of wellbeing, or in microeconomics jargon, the maximization of utility of the occupants. There is a marked difference between upfront-calculated energy performance ratings (EPRs) and realized heating energy consumption (HEC). From an energy and environmental policy point of view, a deviation of energy consumption from ex ante calculated EPRs is problematic, as it offers poor guidance for (prospective) homeowners, policy-makers and researchers relying on the EPRs as benchmarks. The EPR-HEC gaps reported are, apart from heterogeneity, i.e. deviations from the mean aggregate values, often attributed to (unanticipated) behavioral effects. From an energy economist’s point of view, energy rebound induced by a decreasing unit price per unit of energy service output is one explanation. The existing literature in this field almost entirely treats building-specific EPRs as universal standards, trying to explain the empirically observed discrepancies. In this paper, we investigate whether and to what extent the current EPR scheme in place in Germany today can address behavioral issues. To this end, we empirically investigate the deviations between EPRs used in regulation and observed HEC levels based on two different data sets for Germany. The results show that it is not necessarily the behavioral dimension, but rather the static and mostly technically guided calculations of the EPRs itself that account for the major part of this deviation. The results obtained and insights gained from our analysis highlight the need for further improvements in the field of EPR regulation and methodology. |
| Keywords: | Energy performance rating; Energy performance gap; Heating energy; Consumer behavior |
| JEL: | Q40 |
| Date: | 2016–11–23 |
| URL: | http://d.repec.org/n?u=RePEc:ris:fcnwpa:2016_017&r=reg |
| By: | Mara Faccio; Luigi Zingales |
| Abstract: | We study how political factors shape competition in the mobile telecommunication sector. We show that the way a government designs the rules of the game has an impact on concentration, competition, and prices. Pro-competition regulation reduces prices, but does not hurt quality of services or investments. More democratic governments tend to design more competitive rules, while more politically connected operators are able to distort the rules in their favor, restricting competition. Government intervention has large redistributive effects: U.S. consumers would gain $65bn a year if U.S. mobile service prices were in line with German ones and $44bn if they were in line with Danish ones. |
| JEL: | D72 L11 P16 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23041&r=reg |
| By: | Peter A. Lang |
| Abstract: | A transition to nuclear power was disrupted in the late-1960s. Counterfactual analyses suggest the foregone benefits of the disruption are substantial. Learning rates are presented for nuclear power in seven countries comprising 58% of all nuclear power reactors ever built. Learning rates and deployment rates changed in the late-1960s from rapidly falling costs and accelerating deployment to rapidly rising costs and stalled deployment. If the early rates had continued nuclear power could now be around 10% of its current cost. The additional nuclear power could have substituted for 69,000-186,000 TWh of coal and gas generation, thereby avoiding up to 9.5 million deaths and 174 Gt CO2 emissions. In 2015 alone nuclear power could have replaced up to 100% of coal and 76% of gas-generated electricity, thereby avoiding up to 540,000 deaths and 11 Gt CO2. Rapid progress was achieved in the past and could be again, with appropriate policies. Research is needed to identify impediments to progress, and policy is needed to remove them. |
| Keywords: | Nuclearpower, Constructioncost, Learningrate, Experience curve, Energy transition, Forgone benefits, Deaths, CO2 emissions |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:een:camaaa:2017-04&r=reg |
| By: | Ulrich Doraszelski; Katja Seim; Michael Sinkinson; Peichun Wang |
| Abstract: | We explore the sensitivity of the U.S. government's ongoing incentive auction to multi-license ownership by broadcasters. We document significant broadcast TV license purchases by private equity firms prior to the auction and perform a prospective analysis of the effect of ownership concentration on auction outcomes. We find that multi-license holders are able to raise spectrum acquisition costs by 22% by strategically withholding some of their licenses to increase the price for their remaining licenses. We analyze a potential rule change that reduces the distortion in payouts to license holders by up to 80%, but find that lower participation could greatly increase payouts and exacerbate strategic effects. |
| JEL: | L10 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23034&r=reg |
| By: | Chia-Wen Chen; Wei-Min Hu; Christopher R. Knittel |
| Abstract: | The Chinese automobile market is the largest in the world with annual sales exceeding 20 million vehicles. The tremendous growth in sales---over 200 percent from 2008 to 2015---and concerns over local air quality have prompted China's policy makers to incentivize the adoption of more fuel efficient vehicles. We examine the response of vehicle purchase behavior to China's largest national subsidy program for fuel efficient vehicles during 2010 and 2011. Using variation from the program's eligibility cutoffs, we find that the program boosted sales for subsidized vehicle models, but that the program also created a substitution effect within highly fuel efficient vehicles and most subsidies went to inframarginal consumers. This substitution effect greatly reduces the cost effectiveness of the program. We calculate that the average cost per ton of carbon dioxide saved is over 82 USD, well above the social cost of carbon used in U.S. regulatory filings. Using the framework in Boomhower and Davis (2014) and accounting for local pollution benefits, we show that ignoring the substitution effect would lead one to conclude that the program is welfare enhancing, whereas in fact the marginal cost of the program exceeds the marginal benefit by almost as much as 300 percent. We also show that the program was not well-targeted; the effect of the subsidy on sales of fuel efficient vehicles was smaller in areas where consumers were more likely to purchase fuel inefficient models or were lower educated. |
| JEL: | L5 L91 Q4 Q5 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23045&r=reg |
| By: | Casey, Gregory |
| Abstract: | In the United States, rising energy efficiency, rather than the use of less carbon-intensive energy sources, has driven the decline in the carbon intensity of output. Thus, understanding how environmental policy will affect energy efficiency should be a primary concern for climate change mitigation. In this paper, I evaluate the effect of environmental taxes on energy use in the United States. To do so, I construct a putty-clay model of directed technical change that matches several key features of the data on U.S. energy use. The model builds upon the standard Cobb-Douglas approach used in climate change economics in two ways. First, it allows the elasticity of substitution between energy and non-energy inputs to differ in the short and long run. Second, it allows for endogenous and directed technical change. In the absence of climate policy, the new putty-clay model of directed technical change and the standard Cobb-Douglas approach have identical predictions for long-run energy use. The reactions to climate policies, however, differ substantially. In particular, the new putty-clay model of directed technical change suggests that a 6.9-fold energy tax in 2055 is necessary to achieve policy goals consistent with the 2016 Paris Agreement and that such a tax would lead to 6.8% lower consumption when compared to a world without taxes. By contrast, the standard Cobb-Douglas approach suggests that a 4.7-fold tax rate in 2055 is sufficient, which leads to a 2% decrease in consumption. Thus, compared to the standard approach, the new model predicts that greater taxation and more forgone consumption are necessary to achieve environmental policy goals. |
| Keywords: | Energy, Climate Change, Directed Technical Change, Growth |
| JEL: | H23 O30 O40 Q40 Q54 |
| Date: | 2017–01–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:76416&r=reg |
| By: | Hennlock, Magnus (Policy and Economy, IVL Swedish Environmental Research Institute,); Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Wollbrant, Conny (Department of Economics, School of Business, Economics and Law, Göteborg University) |
| Abstract: | We conduct an artefactual field experiment in which 164 managers and senior advisors recruited from Swedish industry were presented with a task of maximizing net revenue from abatement investments under three different but equally stringent environmental policy regimes. We find that investment decisions are strongly influenced by type of policy instrument. Economic instruments and performance standards cause different attentional and judgment biases that are inconsistent with standard economic theory. Inconsistencies are larger with economic policy instruments (tax and subsidy) than with performance standards even though subjects’ attention to cost minimization was greater with economic instruments than under performance standards. |
| Keywords: | artefactual field experiment; bounded rationality; attentional bias; investment inefficiencies; firm; regulation; policy |
| JEL: | C93 H32 L20 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:gunwpe:0687&r=reg |
| By: | Stefan ?etkovi?; Aron Buzogány; Miranda Schreurs |
| Abstract: | The paper introduces a novel framework for classifying different types of national political economies. It applies the outlined framework to analyse in an historical perspective the development of one mature renewable energy sector (onshore wind) and one infant renewable energy sector (offshore wind) across three major types of European economies.The paper shows that the presence of strategic state.market coordination and the decentralized pluralist polity constitute key enabling factors that drive the development of new renewable energy technologies. The commonalities and differences in the political economy of the onshore and offshore wind sectors are also discussed. |
| Keywords: | Capitalism, Industrial productivity, Renewable energy sources, Sustainable development |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:unu:wpaper:wp2016-018&r=reg |
| By: | Bruno Lanz (University of Neuchâtel, Department of Economics and Business; ETH Zurich, Chair for Integrative Risk Management and Economics; Massachusetts Institute of Technology, Joint Program on the Science and Policy of Global Change.); Jules-Daniel Wurlod (Boston Consulting Group, Geneva, Switzerland.); Luca Panzone (Newcastle University, School of Agriculture, Food and Rural Development, UK.); Timothy Swanson (Graduate Institute of International and Development Studies, Centre for International Environmental Studies, Switzerland.) |
| Abstract: | Pigovian regulation provides monetary penalties/rewards to incentivize prosocial behavior, and may thereby trigger behavioral effects beyond a more standard response associated with a change in relative prices. This paper quantifies the magnitude of these behavioral effects using data from an experiment on real product choices together with a structural model of consumer behavior. First, we show that information about external effects (products’ embodied carbon emissions) triggers voluntary substitution towards cleaner alternatives, and we estimate that this effect is equivalent to a change in relative prices of GBP30.69-165.15/tCO2. Second, comparing a Pigovian intervention (GBP19/tCO2) with a neutrally-framed price change of the same magnitude, we find a negative behavioral effect associated with regulation. Compensating this bias would require increasing the Pigovian price signal by up to 48.06/tCO2. Finally, based on a cross-product comparison, we show that the magnitude of behavioral effects declines with substitutability between clean and dirty product alternatives, a measure of effort to reduce emissions. |
| Keywords: | Externalities; Pigovian regulation; Consumer behavior; Information; Field experiments; Environmental policy. |
| JEL: | C93 D03 D12 H23 Q58 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:irn:wpaper:17-01&r=reg |
| By: | Baumeister, Christiane; Ellwanger, Reinhard; Kilian, Lutz |
| Abstract: | It is commonly believed that the response of the price of corn ethanol (and hence of the price of corn) to shifts in biofuel policies operates in part through market expectations and shifts in storage demand, yet to date it has proved difficult to measure these expectations and to empirically evaluate this view. We utilize a recently proposed methodology to estimate the market's expectations of the prices of ethanol, unfinished motor gasoline and crude oil at horizons from three months to one year. We quantify the extent to which price changes were anticipated by the market, the extent to which they were unanticipated, and how the risk premium in these markets has evolved. We show that the Renewable Fuel Standard (RFS) is likely to have increased ethanol price expectations by as much $1.45 in the year before and in the year after the implementation of the RFS had started. Our analysis of the term structure of expectations provides support for the view that a shift in ethanol storage demand starting in 2005 caused an increase in the price of ethanol. There is no conclusive evidence that the tightening of the RFS in 2008 shifted market expectations, but our analysis suggests that policy uncertainty about how to deal with the blend wall raised the risk premium in the ethanol futures market in mid-2013 by as much as 50 cents at longer horizons. Finally, we present evidence against a tight link from ethanol price expectations to corn price expectations and hence to storage demand for corn in 2005-06. |
| Keywords: | biofuels,policy uncertainty,term structure of price expectations,price shocks,market integration,anticipation,storage demand,risk premium,crude oil,gasoline,corn |
| JEL: | Q18 Q28 Q42 Q58 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:563&r=reg |