nep-reg New Economics Papers
on Regulation
Issue of 2017‒06‒11
fifteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. To switch or not to switch? Understanding German consumers' willingness to pay for green electricity tariff attributes By Sauthoff, Saramena; Danne, Michael; Mußhoff, Oliver
  2. Coordinated balancing. Report on the key elements of debate from a workshop of the Future Power Market Platform By Neuhoff, Karsten; Richstein, Jörn; May, Nils
  3. Regulation, institutions and aggregate investment: New evidence from OECD countries By Balázs Égert
  4. How fast can one overcome the paradox of the energy transition? A predictive physico-economic model for the European power grid By Laurent Pagnier; Philippe Jacquod
  5. Electrifying Africa: how to make Europe’s contribution count By Simone Tagliapietra
  6. Brexit as Climate Policy: The Agenda on Energy and the Environment By Ralf Martin
  7. A predictive pan-European economic and production dispatch model for the energy transition in the electricity sector By Laurent Pagnier; Philippe Jacquod
  8. Strategies for mitigating air pollution in Mexico City By ITF
  9. Estimating Mark-ups and the Effect of Product Market Regulations in Selected Professional Services Sectors: A Firm-level Analysis By Anna Thum-Thysen; Erik Canton
  10. The Long-Run Dynamics of Electricity Demand: Evidence from Municipal Aggregation By Tatyana Deryugina; Alexander MacKay; Julian Reif
  11. Forecasting the distributions of hourly electricity spot prices By Christian Pape; Arne Vogler; Oliver Woll; Christoph Weber
  12. Discriminatory Information Disclosure By Hao Li; Xianwen Shi
  13. Public transport authorities’ use of cost-benefit analysis in practice By Vigren , Andreas; Ljungberg , Anders
  14. An adverse selection approach to power pricing By Cl\'emence Alasseur; Ivar Ekeland; Romuald Elie; Nicol\'as Hern\'andez Santib\'a\~nez; Dylan Possama\"i
  15. The Private Benefit of Carbon and its Social Cost By Richard S.J. Tol

  1. By: Sauthoff, Saramena; Danne, Michael; Mußhoff, Oliver
    Abstract: In order to achieve an environmentally friendly and sustainable energy supply, it is necessary that this goal is supported by society. In different countries worldwide it has been shown that one way consumers want to support the energy transition is by purchasing green electricity. However, few people make the leap from their intention to a buying decision. This study explores parameters that influence whether German consumers decide to switch to a green electricity tariff. We conducted a quota-representative online survey including a discrete choice experiment with 371 private households in Germany in 2016. For the econometric analysis, a generalized multinomial logit model in willingness to pay (WTP) space was employed, enabling the estimation of WTP values to be as realistic as possible. The results show that consumers' decision regarding whether or not to make the switch to green energy is influenced by many underlying drivers, such as the source of green energy, whether a person can outsource the switching process, and a person's attitude towards the renewable energy sources levy that currently exists in Germany. Implications for policy makers and recommendations for the marketing of green energy tariffs are provided.
    Keywords: energy transition,green energy,tariff switch,discrete choice experiment,generalised multinomial logit model,WTP space
    Date: 2017
  2. By: Neuhoff, Karsten; Richstein, Jörn; May, Nils
    Date: 2017
  3. By: Balázs Égert (OECD)
    Abstract: This paper investigates the relationship linking investment (capital stock) and structural policies. Using a panel of 32 OECD countries from 1985 to 2013, we show that more stringent product and labour market regulations are associated with less investment (lower capital stock). The paper also sheds light on the existence of non-linear effects of product and labour market regulation on the capital stock. Several alternative testing methods show that the negative influence of product and labour market regulation is considerably stronger at higher levels. The paper uncovers important policy interactions between product and labour market policies. Higher levels of product market regulations (covering state control, barriers to entrepreneurship and barriers to trade and investment) tend to amplify the negative relationships between product and labour market regulations and the capital stock. Equally important is the finding that the rule of law and the quality of (legal) institutions alters the overall impact of regulations on capital deepening: better institutions reduce the negative effect of more stringent product and labour market regulations on the capital stock, possibly through the reduction of uncertainty as regards the protection of property rights.
    Keywords: aggregate investment, capital deepening, labour market regulation, product market regulation, structural policy
    JEL: A23 C13 C51 E24 L43 L51
    Date: 2017–06–08
  4. By: Laurent Pagnier; Philippe Jacquod
    Abstract: The paradox of the energy transition is that, because of the low marginal costs of new renewable energy sources (RES), it drags electricity prices down and discourages investments in flexible productions that are needed to compensate for the lack of dispatchability of the new RES - the energy transition discourages the investments that are required for its own harmonious expansion. To investigate how this paradox can be overcome, we argue that future electricity prices can be accurately modeled from the residual load obtained by subtracting the sum of inflexible productions from the load. Armed with the resulting quantitative economic indicator, we investigate future revenues for power plants with various degree of flexibility under different scenarios for the energy transition in the European power grid. We find that flexible productions will be financially rewarded better and sooner if the energy transition proceeds faster but at more or less constant total production, i.e. by reducing the production of thermal power plants at the same rate as the production of RES increases. Less flexible productions, on the other hand, will see their revenue grow more moderately. Our results advocate for a faster energy transition with a quicker withdrawal of baseload thermal power plants.
    Date: 2017–06
  5. By: Simone Tagliapietra
    Abstract: Electrification is one of sub-Saharan Africa’s most pressing socio-economic challenges. Less than a third of the sub-Saharan population has access to electricity, and around 600,000 premature deaths are caused each year by household air pollution resulting from the use of polluting fuels for cooking and lighting. Solving this issue is a fundamental prerequisite for unleashing sub-Saharan Africa’s economic potential. Given the magnitude of the challenge, only a joint effort involving sub-Saharan African countries and international public and private parties would pave the way to a solution. Sub-Saharan African countries should be the first to move. They should reform the governance of their energy sectors, in particular by reforming their generally inefficient state-owned electricity utilities, and by phasing-out market-distorting energy subsidies. Without such reforms, international investment will never scale-up across sub-Saharan Africa. International public and private parties must play a key role in facilitating sub-Saharan Africa’s energy transformation, particularly the electrification of rural areas, where three-fifths of the sub-Saharan African population lives. International public support is particularly important to crowd-in international private investors, most notably through innovative public-private partnerships. China and the United States are already engaged in electrification in sub-Saharan Africa. China has substantially invested in large-scale electricity projects, while the US has put in place a comprehensive initiative – Power Africa – to scale-up electrification, particularly in rural areas, through public-private partnerships. Europe has, instead, created a myriad of fragmented initiatives to promote electrification in sub-Saharan Africa, limiting their potential leverage in crowding-in private investment and in stimulating energy sector reforms in sub-Saharan African countries. This sub-optimal situation should be changed by coordinating the initiatives of European institutions and EU countries through a unique platform. We propose such a platform - the EU Electrify Africa Hotspot.
    Date: 2017–06
  6. By: Ralf Martin
    Abstract: The Great Recession and a sluggish economic recovery were instrumental in meeting the legally binding climate change targets that the UK has set for itself. But without more drastic policy interventions, it is unlikely that future targets will be met - unless the more extreme forecasts for the impact of Brexit on economic activity are realised. What's more, most Brexit scenarios would see the UK leaving the European Union's emissions trading system (EU ETS), which is a key instrument of climate policy all over Europe, including the UK. And deeper, not less, integration with European energy markets is going to be an important route to keeping power prices lower. These are among the conclusions of a new report from the Centre for Economic Performance (CEP) - the latest in a series of background briefings on key policy issues and manifesto promises in the June 2017 UK general election.
    Keywords: Brexit, climate change, UK government policy, European Union Emissions Trading System, EU ETS, UK 2017 General Election
    Date: 2017–06
  7. By: Laurent Pagnier; Philippe Jacquod
    Abstract: The energy transition is well underway in most European countries. It has a growing impact on electric power systems as it dramatically modifies the way electricity is produced. To ensure a safe and smooth transition towards a pan-European electricity production dominated by renewable sources, it is of paramount importance to anticipate how production dispatches will evolve, to understand how increased fluctuations in power generations can be absorbed at the pan-European level and to evaluate where the resulting changes in power flows will require significant grid upgrades. To address these issues, we construct an aggregated model of the pan-European transmission network which we couple to an optimized, few-parameter dispatch algorithm to obtain time- and geographically-resolved production profiles. We demonstrate the validity of our dispatch algorithm by reproducing historical production time series for all power productions in fifteen different European countries. Having calibrated our model in this way, we investigate future production profiles at later stages of the energy transition - determined by planned future production capacities - and the resulting interregional power flows. We find that large power fluctuations from increasing penetrations of renewable sources can be absorbed at the pan-European level via significantly increased electricity exchanges between different countries. We identify where these increased exchanges will require additional power transfer capacities. We finally introduce a physically-based economic indicator which allows to predict future financial conditions in the electricity market. We anticipate new economic opportunities for dam hydroelectricity and pumped-storage plants.
    Date: 2017–06
  8. By: ITF
    Abstract: This report examines air pollution mitigation strategies in Mexico City. It identifies a series of measures that can strengthen current approaches to air pollution mitigation adopted in Mexico's capital as well as nationally. Recommendation include actions in policy areas such as emissions standards and testing, incentives for cleaner vehicles, fuel quality, inspection and maintenance, restrictions on vehicle use, parking regulation and speed limits, air quality plans, enhancement and promotion of sustainable transport modes as well as improving enforcement and public communication. The publication assembles the findings of a workshop organised by the ITF and the Development Bank for Latin America (CAF) together with the Ministry of Environment of Mexico City (SEDEMA) in January 2017. This report is part of the International Transport Forum’s Case-Specific Policy Analysis series. These are topical studies on specific issues carried out by the ITF in agreement with local institutions.
    Date: 2017–06–09
  9. By: Anna Thum-Thysen; Erik Canton
    Abstract: In this paper we estimate mark-ups and their association with product market regulations (PMR) in professional services sectors using the Orbis firm-level database for 13 EU member states. We will concentrate on engineering and accounting. Results indicate a significant effect of PMR on mark-ups, which confirms findings based on sectoral data (cf. Thum-Thysen and Canton, 2015) but a more granular analysis on the firm level gives additional insights. Compared to estimates of mark-ups based on sectoral data, the mark-up levels in the two analysed sectors using firm-level data are found to be higher. This may be due to a more granular sectoral definition, only covering regulated professions, where firms can gain market power and charge higher mark-ups. The new empirical findings could be useful for the analytical work on estimating the impact of structural reforms.
    JEL: D40 E31 L51
    Date: 2017–05
  10. By: Tatyana Deryugina; Alexander MacKay; Julian Reif
    Abstract: Understanding the response of consumers to electricity prices is essential for crafting efficient energy market regulations, evaluating climate change policy, and investing optimally in infrastructure. We study the dynamics of residential electricity demand by exploiting price variation arising from a natural experiment: the introduction of an Illinois policy that enabled communities to select electricity suppliers on behalf of their residents. Participating communities experienced average price decreases in excess of 10 percent in the two years following adoption. Using a flexible difference-in-differences matching approach, we estimate a one-year price elasticity of -0.14 and three-year elasticity of -0.29. We also present evidence that consumers increased usage in anticipation of the price changes. Finally, we estimate a forward-looking demand model and project that the price elasticity converges to a value between -0.30 and -0.35 after ten years. Our findings demonstrate the importance of accounting for long-run dynamics in this context.
    JEL: D12 Q41 Q48
    Date: 2017–06
  11. By: Christian Pape; Arne Vogler; Oliver Woll; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))
    Abstract: We present a stochastic modelling approach to describe the dynamics of hourly electricity prices. The suggested methodology is a stepwise combination of several mathematical operations to adequately characterize the distribution of electricity spot prices. The basic idea is to analyze day-ahead prices as panel of 24 cross-sectional hours and to identify principal components of hourly prices to account for the cross correlation between hours. Moreover, non-normality of residuals is addressed by performing a normal quantile transformation and specifying appropriate stochastic processes for time series before fit. We highlight the importance of adequate distributional forecasts and present a framework to evaluate the distribution forecast accuracy. The application for German electricity prices 2015 reveal that: (i) An autoregressive specification of the stochastic component delivers the best distribution but not always the best point forecasting results. (ii) Only a complete evaluation of point, interval and density forecast, including formal statistical tests, can ensure a correct model choice.
    Keywords: Distribution forecasts, Electricity, Price forecasting, Panel data, Statistical tests
    JEL: Q47 N74
    Date: 2017–05
  12. By: Hao Li; Xianwen Shi
    Abstract: A seller designs a mechanism to sell a single object to a potential buyer whose private type is his incomplete information about his valuation. The seller can disclose additional information to the buyer about his valuation without observing its realization. In both discrete-type and continuous-type settings, we show that discriminatory disclosure - releasing different amounts of additional information to different buyer types - dominates full disclosure in terms of seller revenue. An implication is that the orthogonal decomposition technique, while an important tool in dynamic mechanism design, is generally invalid when information disclosure is part of the design.
    Keywords: Sequential Screening, Information Disclosure, Dynamic Mechanism Design, Orthogonal Decomposition
    JEL: D82 D42 C73
    Date: 2017–05–29
  13. By: Vigren , Andreas (VTI); Ljungberg , Anders (Transport Analysis)
    Abstract: Public transport services in Sweden are in 2016 worth over 40,000 million SEK annually, and the planning is carried out mostly by the Public Transport Authorities (PTA). Given the national goals for transport and infrastructure, economic efficiency is essential also in public transport operations. In 2003, Ljungberg (2007) sought to answer to which extent PTAs use Cost-Benefit Analyses (CBA), a methodology to assess economic efficiency, in their planning of operations and infrastructure. It was found that CBA is seldom used. This paper tries to answer the same question, but for the year 2016. The aim is, like Ljungberg (2007), to see to what extent PTAs are using CBA today, but also to investigate whether there have been any changes compared to the previous study. A survey was sent to all Swedish PTAs with questions regarding current, previous, and projected future use of CBA. Questions about knowledge of reference materials and why the organization use (or do not use) CBA was asked. The main results are that most PTAs are not using CBA as decision support. For those who does, the method is used mostly for investments in payment systems and major line or traffic changes. When comparing the usage of CBA across different investment categories, the only statistically significant change from the 2003-study is an increased usage when changing fare structure. The PTAs seem not regard a lack of economic resources a reason for not using CBA. Rather, lack of knowledge and more reliance on other types of decision support are the reasons.
    Keywords: Cost Benefit Analysis; Economic efficiency; Survey; CBA usage; Decision support
    JEL: C83 D61 L91 L98
    Date: 2017–06–01
  14. By: Cl\'emence Alasseur; Ivar Ekeland; Romuald Elie; Nicol\'as Hern\'andez Santib\'a\~nez; Dylan Possama\"i
    Abstract: We study the optimal design of electricity contracts among a population of consumers with different needs. This question is tackled within the framework of Principal-Agent problem in presence of adverse selection. The particular features of electricity induce an unusual structure on the production cost, with no decreasing return to scale. We are nevertheless able to provide an explicit solution for the problem at hand. The optimal contracts are either linear or polynomial with respect to the consumption. Whenever the outside options offered by competitors are not uniform among the different type of consumers, we exhibit situations where the electricity provider should contract with consumers with either low or high appetite for electricity.
    Date: 2017–06
  15. By: Richard S.J. Tol (Department of Economics, University of Sussex; Department of Spatial Economics, Vrije Universiteit Amsterdam; Institute for Environmental Studies, Vrije Universiteit Amsterdam; Tinbergen Institute, Amsterdam; CESifo, Munich)
    Abstract: The private benefit of carbon is the value, at the margin, of the energy services provided by the use of fossil fuels. It is the weighted average of the price of energy times the carbon dioxide emission coefficient, with energy used as weights. The private benefits is here estimated, for the first time, at $411/tCO2. The private benefit is lowest for coal use in industry and highest for residential electricity; it is lowest in Kazakhstan and highest in Norway. The private benefit of carbon is much higher than the social cost of carbon.
    Keywords: private benefit of carbon; social cost of carbon; climate policy
    JEL: Q54
    Date: 2017–05

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