nep-reg New Economics Papers
on Regulation
Issue of 2017‒11‒19
twenty papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Energy transition in Germany and regional spillovers: What triggers the diffusion of renewable energy in firms? By Horbach, Jens; Rammer, Christian
  2. The Competitive Effects of Linking Electricity Markets Across Space and Time By Tangerås, Thomas; Wolak, Frank A.
  3. Multinational corporations and the EU emissions trading system: Asset erosion and creeping deindustrialization? By aus dem Moore, Nils; Großkurth, Philipp; Themann, Michael
  4. Did the Renewable Fuel Standard Shift Market Expectations of the Price of Ethanol? By Christiane Baumeister; Reinhard Ellwanger; Lutz Kilian
  5. Data Center Energy Efficiency Investments: Qualitative Evidence from Focus Groups and Interviews By Heather Klemick; Elizabeth Kopits; Ann Wolverton
  6. Optimal Cost Overruns: Procurement Auctions with Renegotiation By Herweg, Fabian; Schwarz, Marco A.
  7. Emission Cap Commitment versus Emission Intensity Commitment as Self-Regulation By Hirose, Kosuke; Matsumura, Toshihiro
  8. Who Bears the Economic Costs of Environmental Regulations? By Don Fullerton; Erich Muehlegger
  9. Exploring Perceptions of the Credibility of Policy Mixes: The Case of German Manufacturers of Renewable Power Generation Technologies By Karoline S. Rogge; Elisabeth Dütschke
  10. Public Transport and Urban Pollution By Rainald Borck
  11. Subsidized Capacity Investment under Uncertainty By Wen, Xingang; Hagspiel, V.; Kort, Peter
  12. The energy costs of historic preservation By Christian Hilber, Charles Palmer, Edward Pinchbeck
  13. Market Power Under Nodal and Zonal Congestion Management Techniques By Bjørndal, Endre; Bjørndal, Mette; Rud, Linda; Alangi, Somayeh Rahimi
  14. Variance optimal hedging with application to Electricity markets By Xavier Warin
  15. The impact of broadband and other infrastructure on the location of new business establishments By Daire McCoy, Sean Lyons, Edgar Morgenroth, Donal Palcic, Leonie Allen
  16. Lightening Up: How Less Heavy Vehicles Can Help Cut CO2 Emissions By ITF
  17. Internet and Politics: Evidence from U.K. Local Elections and Local Government Policies By Alessandro Gavazza; Mattia Nardotto; Tommaso M. Valletti
  18. Characteristic of Successful Energy Policy from Politics, Economics, Social and Technological Perspective - a qualitative analysis By Yuzran Bustamar; Ian Lange; Elizabeth Van Wie Davis
  19. The regulation of public service broadcasters: should there be more advertising on television? By Gregory S. Crawford; Lachlan Deer; Jeremy Smith; Paul Sturgeon
  20. Environmental Taxation: Pigouvian or Leviathan ? By Isabelle Cadoret; Emma Galli; Fabio Padovano

  1. By: Horbach, Jens; Rammer, Christian
    Abstract: The success of an energy turnaround towards renewables highly depends on the willingness and ability of firms to adopt energy technologies using renewable sources. Existing studies focused on the role of regulation and energy markets (e.g. the price for fossil energy) to explain the diffusion of green energy technologies. The present paper tries to give a more comprehensive view on the determinants of renewable energy innovations focusing on the crucial role of firms' regional environment (role of regional spillover effects, the greenness of a region and the regional endowment with green energy plants). We use a unique database combining the Community Innovation Survey 2014 for Germany and NUTS 3 data on renewable energy plants, the greenness of a region and other economic control variables. We find that geographical proximity to electricity production based on renewable energy sources and the orientation of a region towards 'green issues' (measured by the share of green party voters) are both major drivers for such innovations. Furthermore, our results show that in addition to regulation, government subsidies for eco-innovation, high energy costs and regional knowledge spillovers contribute to a rapid adoption of renewable energy. The reinforcing nature of this process leads to a diverging regional development of renewable energy innovations.
    Keywords: Eco-Innovation,Renewable Energy,Community Innovation Survey
    JEL: C25 O31 Q20 R11
    Date: 2017
  2. By: Tangerås, Thomas (Research Institute of Industrial Economics (IFN)); Wolak, Frank A. (Program on Energy and Sustainable Development and Department of Economics)
    Abstract: We show that a common regulatory mandate in electricity markets that use location-based pricing that requires all customers to purchase their wholesale electricity at the same quantity-weighted average of the locational prices can increase the performance of imperfectly competitive wholesale electricity markets. Linking locational markets strengthens the incentive for vertically integrated firms to participate in the retail market, which increases competition in the short-term wholesale market. In contrast, linking locational markets through a long-term contract that clears against the quantity-weighted average of short-term wholesale prices does not impact average wholesale market performance. These results imply that a policy designed to address equity considerations can also enhance efficiency in wholesale electricity markets.
    Keywords: Electricity markets; Equity; Market design; Market performance; Market power; Vertical integration
    JEL: C72 D43 G10 G13 L13
    Date: 2017–10–17
  3. By: aus dem Moore, Nils; Großkurth, Philipp; Themann, Michael
    Abstract: This study investigates the causal effect of the EU Emissions Trading System (EU ETS) on firms' holdings of fixed assets as an early indicator of industrial relocation, exploiting installation level inclusion criteria of the regulation. To single out companies with particularly low relocation costs, global multinational enterprises (MNEs), we identify ownership structures for the full sample of EU ETS-firms. Matched difference-indifferences estimates provide robust evidence that contradicts the idea of an erosion of European asset bases. Baseline results indicate that the EU ETS led on average to an increase of treated firms' asset bases of 11,1%. However, for a particular subgroup of MNEs, this increase is a mere 1.3%. For these companies, the EU ETS may have induced a shift in investment priorities. While the positive overall effect is very robust, the differential effect for the subgroup cannot be extended to all samples.
    Keywords: EU ETS,cap-and-trade,carbon leakage,multinational corporation
    JEL: F23 H23 Q54 Q58 C21
    Date: 2017
  4. By: Christiane Baumeister; Reinhard Ellwanger; Lutz Kilian
    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
  5. By: Heather Klemick; Elizabeth Kopits; Ann Wolverton
    Abstract: The data center industry is one of the fastest growing energy users in the US. While the industry has improved its energy efficiency over the past decade, engineering analyses suggest that ample opportunities remain to reduce energy use that would save firms money. This study explores potential barriers to energy-efficiency investments in data centers. Given the scarcity of empirical data in this context, we conducted focus groups and interviews with data center managers to elicit information about potential barriers to investment and used content analysis to qualitatively evaluate the results. Split incentives between departments within companies and between colocation data centers and their tenants, uncertainty and imperfect information about the performance of new technologies, and tradeoffs with data center uptime were the most pervasive potential barriers discussed by participants. While these factors have moderately slowed investments in energy-saving technologies for many firms, only in the cases of uncertainty/imperfect information and split incentives are these barriers potentially indicative of market failures.
    Keywords: energy efficiency paradox, market failures, data centers, technology investment barriers
    JEL: Q48 Q52 Q58
    Date: 2017–11
  6. By: Herweg, Fabian (University of Bayreuth); Schwarz, Marco A. (University of Innsbruck)
    Abstract: Cost overrun is ubiquitous in public procurement. We argue that this can be the result of a constrained optimal award procedure: The procurer awards the contract via a price-only auction and cannot commit not to renegotiate. If cost differences are more pronounced for a fancy than a standard design, it is optimal to fix the standard design ex ante. If renegotiation takes place and the fancy design has higher production costs or the contractor\'s bargaining position is strong, the final price exceeds the initial price. Moreover, the procurer cannot benefit from using a multi-dimensional auction, i.e., under the optimal scoring auction each supplier proposes the standard design.
    Keywords: auction; cost overrun; procurement; renegotiation;
    JEL: D44 D82 H57
    Date: 2017–11–09
  7. By: Hirose, Kosuke; Matsumura, Toshihiro
    Abstract: We compare emission cap commitment that restricts total emissions and emission intensity commitment that restricts emissions per unit of output as measures of self-regulation. The monopolist chooses either emission cap commitment or emission intensity commitment and sets the target level under the constraint that the resulting emissions do not exceed the upper limit. We find that profit-maximizing firms choose emission cap commitment, although emission intensity commitment always yields greater consumer surplus. It is ambiguous whether emission intensity commitment or emission cap commitment yields greater welfare. We present two cases in which emission intensity commitment yields greater welfare. One is the most stringent target case (the target emission level is close to zero), and the other is the weakest target case (the target emission level is close to business-as-usual). Our result suggests that the incentive for adopting emission cap commitment is too large for profit-maximizing firms, and thus, governments should encourage the adoption of emission intensity commitment, especially to achieve a zero-emission society efficiently.
    Keywords: self-regulation, emission intensity, emission cap, monopoly, zero-emission
    JEL: L12 L51 Q52
    Date: 2017–11–10
  8. By: Don Fullerton; Erich Muehlegger
    Abstract: Public economics has a well-developed literature on tax incidence – the ultimate burdens from tax policy. This literature is used here to describe not only the distributional effects of environmental taxes or subsidies but also the likely incidence of non-tax regulations, energy efficiency standards, or other environmental mandates. Recent papers find that mandates can be more regressive than carbon taxes. We also describe how the distributional effects of such policies can be altered by various market conditions such as limited factor mobility, trade exposure, evasion, corruption, or imperfect competition. Finally, we review data on carbon-intensity of production and exports around the world in order to describe implications for effects of possible carbon taxation on countries with different levels of income per capita.
    Keywords: distributional effects, carbon tax, environmental policy, incidence
    JEL: H22
    Date: 2017
  9. By: Karoline S. Rogge (SPRU– Science Policy Research Unit, University of Sussex, Brighton BN1 9RH, UK; Fraunhofer Institute Systems and Innovation Research ISI, Karlsruhe, Germany); Elisabeth Dütschke (Fraunhofer Institute Systems and Innovation Research ISI, Karlsruhe, Germany)
    Abstract: The credibility of climate policy has been identified as paramount factor for low-carbon investment and innovation and is thus key for the cost-effective achievement of the decarbonization objectives set out in the Paris Agreement. Yet, despite its importance we have only limited insights into how such policy credibility is formed. To address this gap we explore whether and to what extent corporate perceptions of policy credibility depend on the current policy mix with its national targets, concrete policy instruments and their consistency as well as policy making and implementation. For this, we use the case of the German Energiewende and rely on data collected in 2014 through a survey of German manufacturers of renewable power generation technologies. We analyze the answers of 390 companies through a linear regression to identify policy mix related determinants of perceived policy credibility - measured by a novel indicator based on four survey items. We find that corporate perceptions of policy credibility are mainly shaped by two characteristics of the policy mix, namely the coherence of policy making and implementation, followed by the consistency of the policy mix. Elements of the policy mix matter as well, in particular changes in the design of the core demand pull instrument (the Renewable Energy Sources Act, EEG) and the nuclear phase-out policy, but also the German targets for the expansion of renewable energies play a role. These insights enable us to derive more general implications for policy makers around the world interested in promoting the innovation-led decarbonization of the economy by safeguarding and increasing policy credibility.
    Keywords: policy mix, credibility, consistency, coherence, comprehensiveness, energy transition
    Date: 2017–11
  10. By: Rainald Borck
    Abstract: The paper studies the effect of public transport policies on urban pollution. It uses a quantitative equilibrium model with residential choice and mode choice. Pollution comes from commuting and residential energy use. The model parameters are calibrated to replicate key variables for American metropolitan areas. In the counterfactual, I study how free public transport coupled with increasing transit speed affects the equilibrium. In the baseline simulation, total pollution falls by 0.2%, as decreasing emissions from transport are partly offset by rising residential emissions. A second counterfactual compares a city with and without public transit. This large investment decreases pollution by 1.6%. When jobs are decentralized, emissions fall by 0.3% in the first and by 3% in the second counterfactual.
    Keywords: public transport, pollution, discrete choice
    JEL: Q53 Q54 R48
    Date: 2017
  11. By: Wen, Xingang (Tilburg University, Center For Economic Research); Hagspiel, V. (Tilburg University, Center For Economic Research); Kort, Peter (Tilburg University, Center For Economic Research)
    Abstract: This paper studies how the subsidy support, e.g. price support and reimbursed investment cost support, affects the investment decision of a monopoly firm under uncertainty and analyzes the implications for social welfare. The analytical results show that the unconditional, i.e., subsidy support that is introduced from the beginning, makes the firm invest earlier. Under a linear demand structure, the unconditional subsidy cannot align the firm's investment decision to the social optimal one. However, a conditional subsidy, i.e., subsidy support introduced at the social optimal investment threshold, can align the two decisions. For a non-linear demand structure, it is possible for the unconditional subsidy to make the firm invest according to the social optimum. When the investment decisions are aligned, the firm's investment leads to the first-best outcome.
    Keywords: Investment under Uncertainty; Capacity Choice; welfare analysis; Linear Demand; Non-linear Demand
    JEL: D81 L51
    Date: 2017
  12. By: Christian Hilber, Charles Palmer, Edward Pinchbeck
    Abstract: We explore the impact of historic preservation policies on domestic energy consumption. Using panel data for England from 2006 to 2013 and employing a fixed effects strategy, we document that (i) rising national energy prices induce an increase in home energy efficiency installations and a corresponding reduction in energy consumption and (ii) this energy saving effect is significantly less pronounced in Conservation Areas and in areas with high concentrations of Listed Buildings, where the adoption of energy efficiency installations is typically more costly and sometimes legally prevented altogether. The energy costs of preservation are substantial
    Date: 2017–10
  13. By: Bjørndal, Endre (Dept. of Business and Management Science, Norwegian School of Economics); Bjørndal, Mette (Dept. of Business and Management Science, Norwegian School of Economics); Rud, Linda (Dept. of Business and Management Science, Norwegian School of Economics); Alangi, Somayeh Rahimi (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: Contrary to the common thought that nodal pricing provides more opportunities for a strategic player to exert market power than the zonal model, we show that in the latter one because of the need for re-dispatch or counter-trading, another extra place is created letting more gaming possibilities. Therefore, if proper market power mitigation approaches are not utilized in both day-ahead and re-dispatch markets, then zonal pricing may be more susceptible to market power, especially in zonal model which is based on available transfer capacity (ATC), strategic player's profit and social welfare can be very volatile. In general, the more network constraints are incorporated in day-ahead market (100% in nodal and almost zero in ATC), the more social welfare is attainable. Hence, nodal model is acquitted from the more market power denunciation.
    Keywords: Market design; congestion management; available transfer capacity (ATC); market power; exibility cost of re-dispatch or counter-trading
    JEL: C60 L10 L94
    Date: 2017–11–07
  14. By: Xavier Warin
    Abstract: In Electricity markets, illiquidity, transaction costs and market price characteristics prevent managers to replicate exactly contracts. A residual risk is always present and the hedging strategy depends on a risk criterion chosen. We present an algorithm to hedge a position for a mean variance criterion taking into account the transaction cost and the small depth of the market. We show its effectiveness on a typical problem coming from the field of electricity markets.
    Date: 2017–11
  15. By: Daire McCoy, Sean Lyons, Edgar Morgenroth, Donal Palcic, Leonie Allen
    Abstract: This paper analyses the impact of broadband infrastructure, along with a range of other local charac- teristics such as motorways and other infrastructure, availability of human capital and access to third level educational facilities, on the location of new business establishments. The sample period spans the intro- duction and recent history of broadband in Ireland. The results indicate that the availability of broadband infrastructure is a significant determinant, but its effects may be mediated by the presence of suffciently high human capital in an area.
    Date: 2017–11
  16. By: ITF
    Abstract: This report examines how lowering vehicle mass can reduce CO2 emissions from road transport. The average mass of new passenger cars in the European Union has increased by around 40% over the past four decades. Lowering vehicle mass to levels observed in the mid-1970s could reduce vehicle emissions substantially and help meet European Union targets such as the 60% reduction in transport CO2 emissions by 2050. Based on different scenarios, this study shows that mass reduction across all vehicle technologies has potential to reduce the gap between such ambitions and the current trend and would financially benefit the vehicle user. This report was developed in the context of the International Transport Forum’s Decarbonising Transport project. It 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: 2017–11–15
  17. By: Alessandro Gavazza; Mattia Nardotto; Tommaso M. Valletti
    Abstract: We empirically study the effects of broadband internet diffusion on local election outcomes and on local government policies using rich data from the U.K. Our analysis suggests that the internet has displaced other media with greater news content (i.e., radio and newspapers), thereby decreasing voter turnout, most notably among less-educated and younger individuals. In turn, we find suggestive evidence that local government expenditures and taxes are lower in areas with greater broadband diffusion, particularly expenditures targeted at less-educated voters. Our findings are consistent with the idea that voters’ information plays a key role in determining electoral participation, government policies and government size.
    JEL: D72
    Date: 2017
  18. By: Yuzran Bustamar (Division of Economics and Business, Colorado School of Mines); Ian Lange (Division of Economics and Business, Colorado School of Mines); Elizabeth Van Wie Davis (Division of Humanities, Arts and Social Sciences, Colorado School of Mines)
    Abstract: This paper creates a conceptual framework that analyzes successful characteristics of energy policy defined by PEST (Politics, Economics, Social and Technological) determinant indicators. Energy policy that is promoted by a government is meant to ensure reliable energy supply by stimulating energy growth or promoting energy efficiency. Yet, not every policy is successfully implemented or even passed by the lawmakers even one with a clear potential benefit. We performed a qualitative assessment of a review published by International Energy Agency (IEA) of energy policies implemented by the 28 OECD country members within 2003-2014 period. This conceptual framework contributes to our understanding of successful energy policies and lays the foundation for future study to investigate empirical evidence of the determinants of policy success that may lead to security of energy in OECD countries.
    Keywords: Energy Policy Characteristics, Successful Policy, Policy Design, PEST Analysis
    JEL: Q48 P48
    Date: 2017–11
  19. By: Gregory S. Crawford; Lachlan Deer; Jeremy Smith; Paul Sturgeon
    Abstract: Increased competition for viewers’ time is threatening the viability of public-service broadcasters (PSBs) around the world. Changing regulations regarding advertising minutes might increase revenues, but little is known about the structure of advertising demand. To address this problem, we collect a unique dataset on monthly impacts (quantities) and prices of UK television channels between 2002 and 2009 to estimate the (inverse) demand for advertising on both public and commercial broadcasters. We find that increasing PSB advertising minutes to the level permitted for non-PSBs would increase PSB and industry revenue by 10.5% and 6.7%.
    Keywords: Advertising, public service broadcasting, television markets, inverse demand
    JEL: D2 L1 L5 M3
    Date: 2017–11
  20. By: Isabelle Cadoret (CREM CNRS UMR6211, University Rennes 1 & Condorcet Center for Political Economy, France); Emma Galli (DiSSE,Sapienza University of Rome, Rome, Italy); Fabio Padovano (CREM CNRS UMR6211, University Rennes 1 & Condorcet Center for Political Economy, France)
    Abstract: This paper empirically examines for what purposes governments actually use environmental taxes and how efficient they are in achieving such goals. The theoretical literature proposes four alternative interpretations: strictly or loosely Pigouvian, the double dividend and the Leviathan hypotheses. We consider the EU-27 countries that committed themselves to correcting a negative environmental externality, the greenhouse gas (GHG) emissions, by 2020. A dynamic system of simultaneous equations shows that data fail to support both Pigouvian interpretations, since ET neither bring countries closer to the GHG reduction targets, nor governments use them for broader purposes of environmental protection. As no evidence is found that governments substitute ET to more distortive forms of taxation, the analysis suggests that the Leviathan interpretation, which views ET as any other type of tax that governments use to maximize revenues, is the most consistent with reality. Creation-Date: 2017-08
    Keywords: Environmental taxes, environmental policy goals, Pigouvian taxation, double dividend hypothesis, Leviathan government, dynamic simultaneous equations model
    JEL: Q28 H54 H87 D72 D73 D78

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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