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on Regulation |
| By: | Sebastian Rausch; Jan Abrell |
| Abstract: | This paper analyzes hybrid emissions trading systems (ETS) under partitioned environmental regulation when firms’ abatement costs and future emissions are uncertain. We show that hybrid policies that introduce bounds on the price or the quantity of abatement provide a way to hedge against differences in marginal abatement costs across partitions. Price bounds are more efficient than abatement bounds due to their ability to exploit information on firms’ abatement technologies while abatement bounds can only address emissions uncertainty. We find that introducing hybrid policies in EU ETS reduces expected excess abatement costs of achieving targeted emissions reductions under EU climate policy by up to 89 percent. We also find that under partitioned regulation there is a high likelihood for hybrid policies to yield sizeable ex-post cost reductions. We complement our theoretical analysis of hybrid policies under partitioned environmental regulation with an empirical analysis of EU climate policy investigating the question to what extent introducing hybrid policies in the EU ETS could lower the costs of achieving EU's emissions reduction goals. To this end, we develop and apply a stochastic policy optimization model with equilibrium constraints for the European carbon market that is calibrated based on empirical MAC curves derived from a numerical general equilibrium model. The model incorporates two important sources of firm-level uncertainties in the ETS and non-ETS sectors that are relevant for the policy design problem of carbon mitigation: (1) uncertainty about future “no policy intervention” emissions, reflecting uncertain output, demand, or macroeconomic shocks, and (2) uncertainty about future abatement technologies. We find that hybrid ETS policies yield substantial savings in abatement costs relative to a pure quantity based (i.e., the currently existing) EU ETS policy. Under second-best conditions, i.e. when the regulator can ex-ante choose the allocation of the emissions budget across the partitions, an optimal hybrid policy reduces the expected excess costs–relative to a hypothetical, first-best state-contingent policy–by up to 56% (or up to billion $1.5 per year). A third-best hybrid policy, i.e. assuming an exogenously given split of the emissions budget, that reflects current EU climate policy is found to lower expected excess costs by up to 89% (or up to billion $12.1 per year). Overall, we find, however, that the ability of hybrid policies to reduce expected abatement costs diminishes if sectoral baseline emissions exhibit a strong positive correlation. Further, we find that hybrid policies with price bounds are more effective to reduce the abatement costs than hybrid policies with abatement bounds. Price bounds are advantageous as they can address both types of risks whereas abatement bounds can only hedge against emissions uncertainty. Our quantitative analysis suggests that hybrid policies with price bounds are highly likely to yield sizeable ex-post savings in abatement costs, depending on the correlation structure between sectoral “no intervention” emissions. If emissions are negatively (positively) correlated, the probability of ex-post costs savings is 0.67 (0.49). Hybrid polices with abatement bounds achieve ex-post cost reductions in 66 percent of cases if baseline emissions are negatively correlated, but they yield only negligible cost savings when baseline emissions are positively correlated. The reason for this is that abatement bounds fail to exploit information on firms’ abatement technology. |
| Keywords: | European Union, Energy and environmental policy, General equilibrium modeling |
| Date: | 2016–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:ekd:009007:9234&r=reg |
| By: | Shekhar, Shiva |
| Abstract: | We compare a discriminatory pricing regime with a non-discriminatory regime in a competitive bottleneck model where content providers endogenously sort into single or multi-homers. We find that consumer prices rise when the share of single-homers increases in the non-discriminatory case, while they stay constant in the discriminatory pricing regime. A discriminatory pricing regime leads to higher platform profits than the non-discriminatory regime when the share of single-homers are relatively high. When the share of single-homers is relatively high (low), the discriminatory pricing regime leads to higher (lower) consumer surplus and social welfare when compared with the non-discriminatory regime. |
| Keywords: | price discrimination,two-sided markets,platforms,platform competition,network effects |
| JEL: | D43 L14 L82 L13 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:dicedp:247&r=reg |
| By: | Juan-Pablo Montero; Guy Meunier; Jean-Pierre Ponssard |
| Abstract: | We study pollution permit markets in which a fraction of permits are allocated to firms based on their output. Output-based allocations, which are receiving increasing attention in the design of carbon markets around the world (e.g., Europe, California, New Zealand), are shown to be optimal under demand and supply volatility despite the output distortions they may create. In a market that covers multiple sectors, the optimal design combines auctioned permits with output-based allocations that are specific to each sector and increasing in its volatility. When firms are better informed about the latter or must self select, the regulator resort to some free (i.e., lump-sum) allocations to sort firms out. |
| JEL: | D24 L13 H23 L74 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:ioe:doctra:476&r=reg |
| By: | Hunt Allcott (New York University); Michael Greenstone (University of Chicago) |
| Abstract: | Â This paper sets out a framework to evaluate the welfare impacts of residential energy efficiency programs in the presence of imperfect information, behavioral biases, and externalities, then estimates key parameters using a 100,000-household field experiment. Several results run counter to conventional wisdom: we find no evidence of informational or behavioral failures thought to reduce program participation, there are large unobserved benefits and costs that traditional evaluations miss, and realized energy savings are only 58 percent of predictions. In the context of the model, the two programs we study reduce social welfare by $0.18 per subsidy dollar spent, both because subsidies are not well-calibrated to currently-estimated externality damages and because of self-selection induced by subsidies that attract households whose participation generates low social value. However, the model predicts that perfectly-calibrated subsidies would increase welfare by $2.53 per subsidy dollar, revealing the potential of energy efficiency programs |
| Keywords: | energy efficiency, program evaluation, randomized control trials, welfare analysis |
| JEL: | D12 L94 Q41 Q48 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2017-05&r=reg |
| By: | Moon, Jin-Young (Korea Institute for International Economic Policy); Song, Jihei (Korea Institute for International Economic Policy); Lee, Seojin (Korea Institute for International Economic Policy) |
| Abstract: | This paper aims to present ideas on how to mobilize investment for renewable energy by focusing on the catalytic role of public resources. We review global trends in investment and the barriers to renewable energy investment in developing countries. Following the overview, we examine two types of public support to mobilize resource from the private sector. In the conclusion, we suggest ways to increase support and cooperation in renewable energy. |
| Keywords: | Renewable Energy; ODA; Development Cooperation |
| Date: | 2016–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:ris:kiepwe:2016_017&r=reg |
| By: | Stefano Galavotti (University of Padova); Luigi Moretti (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Paola Valbonesi (University of Padova) |
| Abstract: | We study bidding behavior by firms in beauty-contest auctions, i.e. auctions in which the winning bid is the one which gets closet to some function (average) of all submitted bids. Using a dataset on public procurement beauty-contest auctions, we show that firms' observed bidding behavior departs from equilibrium and can be predicted by a sophistication index, which captures the firms' accumulated capacity of bidding close to optimality in the past. We show that our empirical evidence is consistent with a Cognitive Hierarchy model of bidders' behavior. We also investigate whether and how firms learn to bid strategically through experience. |
| Keywords: | cognitive hierarchy,auctions,beauty-contest,public procurement |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-01440891&r=reg |