nep-reg New Economics Papers
on Regulation
Issue of 2017‒02‒19
eighteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Efficient diffusion of renewable energies: A roller-coaster ride By Helm, Carsten; Mier, Mathias
  2. Free Allocation and the Endowment Effect in Cap-and-Trade Systems: Evidence from the European Electricity Sector By Zaklan, Aleksandar
  3. Effects of Attribute-Based Regulation on Technology Adoption - The Case of Feed-In Tariffs for Solar Photovoltaic By Germeshausen, Robert
  4. Potential Impacts of the Planned Market Stability Reserve on Speculators’ Behavior in the EU Emissions Trading System By Falcke, Florian; Madlener, Reinhard
  5. Solar and Wind Deployment: A Comparison of Experiences in Germany, California and Texas. Facts and brief analysis By Peter, Jakob; Elberg, Christina; Bettzüge, Marc Oliver; Höffler, Felix
  6. Germany's Wind and Solar Deployment 1991 - 2015 By Peter, Jakob; Elberg, Christina; Bettzüge, Marc Oliver; Höffler, Felix
  7. Emission taxes, lobbying, and incomplete enforcement By Gerigk, Joschka
  8. Productive Efficiency and Ownership When Market Restructuring Affects Production Technologies By Astrid Cullmann; Maria Nieswand; Julia Rechlitz
  9. Prosumage of Solar Electricity: Pros, Cons, and the System Perspective By Wolf-Peter Schill; Alexander Zerrahn; Friedich Kunz
  10. Tradable Credit Markets for Intensity Standards By Rudik, Ivan
  11. The diffusion of "green'' buildings in the housing market: empirics on the long run effects of energy efficiency regulation By Michelsen, Claus; El-Shagi, Makram; Rosenschon, Sebastian
  12. How to Fill the Digital Gap? The (Limited) Role of Regulation By Briglauer, Wolfgang; Cambini, Carlo; Melani, Sauro
  13. External Impacts of Local Energy Policy: The Case of Renewable Portfolio Standards By Hollingsworth, Alex; Rudik, Ivan
  14. Renewable Energy Sources in Central Europe and East Asia By Janda, Karel; Tan, Tianhao
  15. The cost of adapting to climate change: evidence from the US residential sector By François Cohen; Matthieu Glachant; Magnus Söderberg
  16. Welfare and Redistribution Effects of Alternative Tariffs in Energy Markets with Solar Power By Radulescu, Doina; Pavanini, Nicola; Feger, Fabian
  17. Managing multi-purpose water infrastructure: A review of international experience By Meleesa Naughton; Nicole DeSantis; Alexandre Martoussevitch

  1. By: Helm, Carsten; Mier, Mathias
    Abstract: When the supply of intermittent renewable energies like wind and solar is high, the electricity price is low. Conversely, prices are high when their supply is low. This reduces the profit potential in renewable energies and, therefore, incentives to invest in renewable capacities. Nevertheless, we show that perfect competition and dynamic pricing lead to efficient choices of renewable and fossil capacities, provided that external costs of fossils are internalized by an appropriate tax. We also investigate some properties of electricity markets with intermittent renewables and examine the market diffusion of renewables as their capacity costs fall. We show that the intermittency of renewables causes an S-shaped diffusion pattern, implying that a rapid build-up of capacities is followed by a stage of substantially slowerdevelopment. While this pattern is well known from the innovation literature, the mechanism is new. We also find that technology improvements such as better battery storage capacities have substantial effects not only on the speed of market penetration, but also on its pattern. Finally, fluctuations of energy prices rise with the share of renewables. If regulators respond with a price cap, this leads to a faster market diffusion of renewables.
    JEL: Q21 D24 Q28
    Date: 2016
  2. By: Zaklan, Aleksandar
    Abstract: Independence of installation-level emissions from endowments of allowances allocated for free constitutes a necessary condition for the cost-effectiveness of a cap-and-trade system. A causal relationship between allocations and emissions suggests the presence of an endowment effect induced by free allocation and indicates a loss in cost effectiveness. The issue is relevant to the EU's Emissions Trading System (EU ETS), where a large share of the total allocation occurs for free. This paper tests for the presence of an endowment effect among European electricity sector plants as regulated under the EU ETS by evaluating whether growth in plant-level emissions of power generators changed due to a switch from free allocation to full auctioning. To overcome the endogeneity of allocations I exploit a natural experiment inducing exogenous variation in the allocation of allowances to power producers. While electricity producers located in EU-15 countries were subject to full auctioning starting in 2013, free allocation continued under the so-called 10c rule in eight member states. I apply a matched difference-in-differences research design to a unique EU-wide plant-level dataset of emissions and technical characteristics, constructing a synthetic control group. I find no evidence of a general endowment effect. However, there is some evidence in favor of an endowment effect for a sub-sample of small emitters.
    JEL: Q54 Q58 C22
    Date: 2016
  3. By: Germeshausen, Robert
    Abstract: Feed-in tariffs are a widely used policy instrument to support deployment of renewable energy technologies. The aim of this paper is to estimate the causal effect of a cut in feed-in tariffs on solar photovoltaic (PV) installations. I isolate this effect by a differences-in-differences approach using data on all grid-connected PV systems within Germany from 2009 until 2013 on a county level. A policy change of administrative size classes in 2012 provides exogenous variation in feed-in tariffs. I find that a cut in feed-in tariffs of five percent leads to a decrease in newly installed capacity of around 46 kilowatt (kW) in a county per month. This is equivalent to approximately three percent of the average annual solar PV deployment on a national level from 2009 to 2011. The re-evaluation of size classes implies de facto the introduction of attribute-based regulation for small installations. The design of differentiated rates incentivizes smaller individual capacity choices at the border of size classes. This leads to excess bunching at the ceiling of the smaller size class. Neglecting this leads to overestimating treatment effects by around double the size. This potential bias underlines the impact of attribute-based regulation on technology adoption for solar PV.
    JEL: Q28 O38 Q42
    Date: 2016
  4. By: Falcke, Florian (RWTH Aachen University); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In early 2019, the market stability reserve (MSR), a volume-based regulatory regime for tackling the surplus in emission allowances (EUAs) in the EU Emissions Trading System (EU ETS), will enter into force. The MSR will take EUAs out of the market when the amount of banked and thus unused EUAs exceeds an upper threshold and will release EUAs into the market when the amount of banked EUAs falls under a lower threshold. Over the last years, the design of the MSR has been the topic of controversial discussion. Among other concerns, scientists are afraid that the MSR may increase price volatility and uncertainty, which in turn may enhance specula-tive activity. In this paper we analyze the effect of the MSR on the behavior of a speculator with market power. For this purpose, the interlinked electricity and carbon market is modeled with an open-source agent-based model, which is expanded by adding the banking behavior of the spec-ulator. The results indicate that with the MSR mechanism being active in the EU ETS, both speculative banking activity and speculator profit increase. We further test the hypothesis that the MSR mechanism itself could be used by a speculator to increase his returns, leading to the conclusion that while this is theoretically possible, it is unlikely to actually happen. The results obtained can help to understand future behavior of market participants in the EU ETS.
    Keywords: Global warming; Climate change mitigation; EU ETS; Speculation
    JEL: D84 G18 Q48
    Date: 2016–08
  5. By: Peter, Jakob (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Elberg, Christina (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Bettzüge, Marc Oliver (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Höffler, Felix (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: In light of progressing climate change, both Germany as well as the two U.S. federal states California and Texas have enacted decarbonization strategies based on renewable energies. At the same time, the policy instruments to pursue their goals differ substantially. This comparative study identifies similarities and differences in policy structures as well as the penetration of variable renewable resources. It shows a fast deployment of wind and solar power in Germany at comparatively high cost. At the same time, it reveals that the two U.S. markets could ameliorate the investment conditions for renewable energy via three measures: 1. Reduction of institutional obstacles and transaction costs, 2. Introduction of CO2-pricing (Texas) or increasing CO2-pricing (California), 3. additional support schemes for wind and solar, if substantive reasons for additional support prevail.
    Keywords: Comparative Analysis; Decarbonization; RES Deployment; Energy Sector Regulation
    JEL: L94 N70 Q42 Q48
    Date: 2015–12–19
  6. By: Peter, Jakob (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Elberg, Christina (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Bettzüge, Marc Oliver (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)); Höffler, Felix (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI))
    Abstract: In this case study, Germany´s wind and solar deployment from 1991 to 2015 is analyzed with wind and solar representing a major pillar in Germany´s energy transition. Germany´s NREAP capacity goals for wind and solar power have been outreached, amongst others due to the (at times) generous and investor-risk minimizing feed-in tariff system (EEG) as well as supportive grid connection conditions for renewable energy generators. For a successful integration of further amounts of wind and solar energy, system flexibility, amongst others via a stronger integration of the European electricity market, is key. Also, market design adjustments will become necessary, for which the two in this research cooperation with Stanford University analyzed electricity markets in California and Texas can represent best-practice examples with regard to short-term gate closure times and regionalized electricity pricing.
    Keywords: Comparative Analysis; Decarbonization; RES Deployment; Energy Sector Regulation
    JEL: L94 N70 Q42 Q48
    Date: 2015–12–16
  7. By: Gerigk, Joschka
    Abstract: In this paper, I analyze incomplete enforcement in a political economy model. I use a contest framework to explain changes in lobbying behavior when special interest groups anticipate the incomplete enforceability of environmental regulation. In this setting, I compare two instruments, namely an abatement standard and an emission tax. Regulation of a polluting output is proposed and two lobby groups - representing the interests of producers and environmentalists, respectively - seek to influence the government in order to prevent or support the implementation of the regulation. I develop a general framework to demonstrate that the lobbying efforts are determined not only by the stringency of the proposed policy - as determined by the level of the tax or abatement standard - but, importantly, also by its enforceability. Using common functional specifications, I then show that, when an emission tax is proposed, incomplete enforcement may not only reduce the industry's opposition to regulation compared to a situation with full enforcement, but it may, despite the possibility of untruthful reporting, also reduce expected environmental damage. When instead an abatement standard is proposed, however, the effects of regulatory stringency and enforceability are ambiguous, rendering unequivocal policy recommendations for this case impossible.
    JEL: D72 L51 Q58
    Date: 2016
  8. By: Astrid Cullmann; Maria Nieswand; Julia Rechlitz
    Abstract: While the link between the ownership and productive efficiency of firms has been discussed extensively, no consensus exists regarding the superiority of one or the other in non-competitive, regulated environments. This paper applies a flexibleproduction model to test for efficiency differences associated with ownership types while allowing the production to adapt to market restructuring over time. Our empirical setting is based on a new, rich micro dataset of electricity distribution firms operating between 2006 and 2012 in Germany, where the energy transition enforces the adjustment of energy infrastructure. First, our results show that electricity distribution system operators adapted their production technologies over time. Second, there is no empirical evidence that public firms operated any less efficiently than private firms. The empirical findings are relevant to the (re)municipalization debate, which appears to have exaggerated the dichotomy between public and private utilities’ efficiency.
    Keywords: Utilities, ownership, productivity, electricity distribution, Energiewende
    JEL: L94 L51 L98
    Date: 2017
  9. By: Wolf-Peter Schill; Alexander Zerrahn; Friedich Kunz
    Abstract: We examine the role of prosumage of solar electricity, i.e. PV self-generation combined with distributed storage, in the context of the low-carbon energy transformation. First, we devise a qualitative account of arguments in favor of and against prosumage. Second, we give an overview of prosumage in Germany. Prosumage will likely gain momentum as support payments expire for an increasing share of PV capacities after 2020. Third, we model possible system effects in a German2035 scenario. Prosumage batteries allow for a notable substitution of other storage facilities only if fully available for market interactions. System-friendly operation would also help limiting cost increases. We conclude that policymakers should not unnecessarily restrict prosumage, but consider system and distributional aspects.
    Keywords: Prosumage, battery storage, PV, energy transformation, DIETER
    JEL: C61 Q42 Q48
    Date: 2017
  10. By: Rudik, Ivan
    Abstract: Many environmental standards are expressed in terms of intensity rather than absolute levels. In some cases, intensity standards are associated with tradable credit markets to mitigate the firms’ compliance costs. I develop a jurisdictional model of credit trading under an intensity standard, framed in terms of a Renewable Portfolio Standard for electric utilities. I find that jurisdictions of firms with high costs of compliance may actually be better off by not allowing inter-jurisdictional credit trading. Counterintuitively, increasing the stringency of the intensity standard under credit trading can have the opposite of the intended effect and decrease renewable electricity generation.
    Date: 2016–02–02
  11. By: Michelsen, Claus; El-Shagi, Makram; Rosenschon, Sebastian
    Abstract: The impact of environmental regulation on market diffusion and market entry of "green'', innovative buildings in the housing market is studied using a unique data set of German residential buildings. Particularly, we analyze how energy efficiency regulation, in terms of minimum standards, affects energy-requirements in newly constructed buildings over time in both, the high and low quality housing segment. The data we use consists of a large sample of German apartment houses built between 1950 and 2005. We develop a new measure for regulation intensity and apply a panel-error-correction regression model to energy requirements of low and high quality housing. Our findings suggest that regulation is effective and significantly impacts technology adoption in low quality housing. Moreover, we find that regulation indirectly also positively affects energy efficiency in the high quality housing markets. This suggests that tighter building codes have a substantial impact on both, the entry and the diffusion of ``green'' buildings in the housing market.
    JEL: D20 Q40 R30
    Date: 2016
  12. By: Briglauer, Wolfgang; Cambini, Carlo; Melani, Sauro
    Abstract: This paper provides evidence on the migration from an “old” technology to a “new” technology, taking into account the impact that regulatory interventions on the old one might have on the incentives to invest and adopt the new one. This analysis has been applied to a sample of EU27 countries using panel data from 2004 to 2014 on the adoption, coverage and take-up rate of ultra-fast broadband infrastructures, whose development is one of the flagship initiatives of the Europe 2020 programmes. Results show that a 1% increase in the regulated price to access the old technology increases the adoption and the investment on the new broadband technology by ~0.45% and ~0.47%. These effects are not homogeneous across countries and are weakened in Eastern European countries, where the existing old broadband infrastructures are less developed than in the rest of Europe. It has also been shown that the access price to old networks negatively affects the take-up rate of the new technology-based services, thus calling for the need of more specific and complementary demand side policy incentives to enhance service adoption.
    JEL: L43 L52 C26
    Date: 2016
  13. By: Hollingsworth, Alex; Rudik, Ivan
    Abstract: Renewable portfolio standards (RPSs) are state level policies that require in-state electricity providers to procure a minimum percentage of electricity sales from renewable sources. Using theoretical and empirical models, we show how RPSs induce out-of-state emissions reductions through inter-state trade of the credits used for RPS compliance. When one state passes an RPS, it increases demand for credits sold by firms in other (potentially non-RPS) states. We find evidence that increasing a state’s RPS decreases coal generation and increases wind generation in outside states through this tradable credit channel. We perform a welfare simulation to evaluate the aggregate benefits of the reductions in local coal-fired pollutants induced by RPSs. Our estimates suggest that a 1 percentage point increase a state’s RPS results in up to $100 million in gross benefits towards the United States as a whole. However, there is substantial heterogeneity in the total benefits caused by increases in different states’ RPSs.
    Date: 2016–10–28
  14. By: Janda, Karel; Tan, Tianhao
    Abstract: This paper provides overview of all sustainable energy resources in two geographic areas- Central Europe and East Asia. Comparison of renewable energy sources in these two areas was not done before. We cover newly emerging important renewable energy sources of wind power, solar energy and bioenergy together with somehow less investigated geothermal sources. Our analysis includes also a well established hydroelectricity and nuclear energy. While nuclear energy is not a renewable resource, it was included into this analysis to provide complete coverage of all competitive energy sources with respect to carbon-based fossil fuels. We provide both descriptive and econometric analysis complemented with appropriate case studies.
    Keywords: Renewable Energy; Central Europe; East Asia
    JEL: Q42 R11
    Date: 2017–02–09
  15. By: François Cohen; Matthieu Glachant; Magnus Söderberg
    Abstract: Using household-level data from the American Housing Survey, this paper assesses the cost of adapting housing to temperature increases. The authors account for both energy use adjustments and capital adjustments through investments in weatherization and heating and cooling equipment. The authors’ best estimate of the present discounted value of the cost for adapting to the A2 ‘business-as-usual’ climate scenario by the end of the century is US$5,600 per housing unit, including both energy and investment costs. A more intense use of air conditioners will be compensated for by a reduction in heating need, leading to a shift from gas to electricity consumption.
    Date: 2017–02
  16. By: Radulescu, Doina; Pavanini, Nicola; Feger, Fabian
    Abstract: Renewable energy production via photovoltaic (PV) installations has increasingly taken off during the last years. This trend is desirable from an environmental perspective, but it challenges the financing of utilities' energy infrastructure networks. This happens because buildings with PV installations still require energy from the network, leaving the fixed costs of grid maintenance unchanged, but contribute less to the grid costs, as they mostly pay volumetric charges and intermittently produce their own energy. In this paper we propose an alternative tariff scheme to both incentivize PV adoptions and guarantee the sustainability of network costs. We use detailed data on energy consumption, income, wealth, and building characteristics for around 180,000 households in the Canton of Bern (Switzerland) in the years 2008-2013 to estimate models of energy demand and PV installation. We identify energy demand elasticities using a matching boundary discontinuity design that exploits price variation at spatial discontinuities, and we model PV adoption as a dynamic single agent investment framework. Using a counterfactual exercise we find that under a uniform tariff scheme low income households would experience a very small welfare loss.
    JEL: Q42 L94 D31
    Date: 2016
  17. By: Meleesa Naughton; Nicole DeSantis; Alexandre Martoussevitch (OECD)
    Abstract: In this paper, the term multi-purpose water infrastructure (MPWI) encompasses all man-made water systems, including dams, dykes, reservoirs and associated irrigation canals and water supply networks, which may be used for more than one purpose (for economic, social and environmental activities). While MPWI plays a significant role in the socio-economic development and ensuring water, food and energy security of many countries (not least in water-stressed Central Asia), many MPWI projects face various challenges. These including unsustainability of business models for financing, operation and maintenance, lower-than-expected performance or the emergence of unforeseen risks and negative externalities. This paper explores the complexity in designing, financing, regulating and managing MPWI projects, with the objective to inform policy and decision-making. It attempts to identify key issues related to managing MPWI, lessons learned from international experience and possible solutions to the challenges. It examines several principles, approaches and instruments to enhance the sustainability of MPWI, drawing on international experience. Finally, the paper identifies knowledge and experience gaps, needs for further research and possible areas of future work.
    Keywords: externalities, multi-purpose water infrastructure, nexus, water management
    JEL: D62 Q15 Q18 Q25
    Date: 2017–02–18
  18. By: Wagner, Ulrich J.; De Preux, Laure
    Abstract: Carbon dioxide (CO2) emissions are known to cause global climate change but no damage to the local environment. However, because CO2 is often jointly produced with other substances that pollute the environment, CO2 abatement may generate ancillary benefits, especially for human health. Previous research suggests that these co-benefits can offset a substantial share of the economic costs of mitigation policies. This paper conducts the first empirical test of this hypothesis in the context of the European Emissions Trading Scheme (EU ETS) for CO2. The econometric analysis exploits comprehensive microdata on discharges of more than 90 different pollutants into air, water and soil, at more than 28,000 commercial installations in 31 European countries. It is found that the EU ETS decreased air releases of some pollutants while increasing water releases of other pollutants. Moreover, in some cases the patterns of spatial redistribution are strongly correlated with income, population size or age. The implications for the efficiency and environmental justice of the EU ETS are discussed.
    JEL: H23 Q54 Q58
    Date: 2016

This nep-reg issue is ©2017 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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