nep-reg New Economics Papers
on Regulation
Issue of 2018‒02‒05
seventeen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Optimal location of renewable power By Henrik Bjørnebye; Cathrine Hagem; Arne Lind
  2. Modelling German electricity wholesale spot prices with a parsimonious fundamental model – Validation and application By Philip Beran; Christian Pape; Christoph Weber
  3. The energy costs of historic preservation By Hilber, Christian A. L.; Palmer, Charles; Pinchbeck, Edward W.
  4. Welfare and Redistribution in Residential Electricity Markets with Solar Power By Feger, Fabian; Pavanini, Nicola; Radulescu, Doina
  5. Greenhouse Gas Emissions Intensity and the Cost of Capital By Trinks, Arjan; Ibikunle, Gbenga; Mulder, Machiel; Scholtens, Bert
  6. Energy efficiency as an instrument of regional development policy? Trading-off the benefits of an economic stimulus and energy rebound effects By Gioele Figus; Patrizio Lecca; Peter McGregor; Karen Turner
  7. EU Emissions Trading: Policy-Induced Innovation, or Business as Usual? Findings from Company Case Studies in the Republic of Croatia By Martin Larsson
  8. Comparing the Forecasting Performances of Linear Models for Electricity Prices with High RES Penetration By Angelica Gianfreda; Luca Rossini; Francesco Ravazzolo
  9. System Transition and Structural Change Processes in the Energy Efficiency of Residential Sector: Evidence from EU Countries By Valeria Costantini; Francesco Crespi; Elena Paglialunga; Giorgia Sforna
  10. Threshold Policy Effects and Directed Technical Change in Energy Innovation By Lionel Nesta; Elena Verdolini; Francesco Vona
  11. Optimal procurement of a credence good under limited liability By Bester, Helmut; Yaofu, Ouyang
  12. An Overwiew of Economic Impacts of U.S. Shale Gas Revolution By Janda, Karel; Kondratenko, Ivan
  13. An Overwiew of Economic Impacts of Shale Gas on EU Energy Security By Janda, Karel; Kondratenko, Ivan
  14. Commitment vs. Flexibility with Costly Verification By Halac, Marina; Yared, Pierre
  15. Individual Drivers for Direct and Indirect Rebound Effects: A Survey Study of Electric Vehicles and Building Insulation in Austria By Seebauer, Sebastian
  16. Transition énergétique et (dé)croissance économique By Elise Dupont; Hervé Jeanmart; Louis Possoz; Jean-François Fagnart; Marc Germain
  17. How Robust are Estimates of the Rebound Effect of Energy Efficiency Improvements? A Sensitivity Analysis of Consumer Heterogeneity and Elasticities By Kulmer, Veronika; Seebauer, Sebastian

  1. By: Henrik Bjørnebye; Cathrine Hagem (Statistics Norway); Arne Lind
    Abstract: A decarbonization of the energy sector calls for large new investments in renewable energy production. When choosing the location for increased production capacity, the producer has typically limited incentives to take fully into account the investments costs of the subsequent need for increased grid capacity. This may lead to inefficient choices of location. We discuss the regulatory background for an integrated EU electricity market, the binding renewable targets, and renewable incentives. We explore analytically the design of feed-in premiums that secure an optimal coordinated development of the entire electricity system. We investigate numerically the potential welfare cost of a non-coordinated development of grids and production capacity in the Norwegian energy system. Our result indicates that grid investment costs can be substantially higher when the location decision is based on private profitability compared with a socially optimal location. However, the difference in the sum of grid investment cost and production cost is much more modest, as location based on private profitability leads to capacity increase in areas with better wind conditions.
    Keywords: Energy policy; renewable targets; wind power; location of renewable energy production; feed-in premiums
    JEL: Q42 Q48 Q58
    Date: 2017–06
  2. By: Philip Beran; Christian Pape; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))
    Abstract: Increasing shares of fluctuating renewable energy, the integration of European electricity grids and markets as well as new technologies induce continuous change in the European energy system. Due to these changes, fundamental electricity system and market models that have been developed and applied in the past are dealing with an increasing number of details inducing correspondingly huge data needs. The complexity of these called parameter-rich models (cf. Weron, 2014) leads to limited transparency, also on the impact of data on results, and makes model backtesting rather cumbersome. At the same time, the validity of future scenarios based on non-validated models is dubious. To complement these highly complicated models, more reduced models may be helpful both for transparency and for backtesting. In this paper, we apply a parsimonious fundamental modelling approach to determine hourly German day-ahead power market prices and production volumes. The methodology approximates the supply stack by a piecewise linear function and considers fundamental information, e.g. power plant capacities and availabilities, fuel prices, must-run production and cross-border exchange. We reduce complexity by considering technology classes, uncoupled time periods and only one market area. Between 2011 and 2015, German day-ahead prices declined by 38% and various reasons have been identified in literature, namely a drop in emission certificate prices, the expansion of renewable energies (RES) or lower fuel prices. However, the decision of the German government to shut down nuclear power plants after the Fukushima nuclear disaster happened at the same time and received too little attention as it rather by itself could have led to an increase in prices. The parsimonious model is able to reproduce the hourly historical prices (2011-2015) with a MAE of 5.6 €/MWh and accurately reproduces the electricity production volumes for most thermal production units. In a case study, we investigate a counterfactual scenario without accelerated nuclear phase-out in Germany after the Fukushima nuclear disaster in 2011. The results indicate that German day-ahead power prices would have fallen by additional 3 €/MWh if the nuclear phase-out would have not occurred. Since coal- and gas-fired production as well as additional imports have substituted production from nuclear power plants, their usage would have dropped in the counterfactual scenario.
    Keywords: electricity markets, fundamental modelling, nuclear phase-out, german spot prices
    JEL: Q41 Q48
    Date: 2018–01
  3. By: Hilber, Christian A. L.; Palmer, Charles; Pinchbeck, Edward W.
    Abstract: We explore the impact of historical 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 places with high concentrations of Listed Buildings, where the adoption of energy efficiency installations is typically more costly and sometimes legally prevented altogether. Preservation policies increase private energy costs and the social cost of carbon per designated dwelling by around £8,000 and £2,550, respectively. These costs ought to be weighed against any benefits of preservation
    Keywords: preservation policies; land use regulation; energy efficiency; energy consumption; climate change
    JEL: Q48 Q54 R38 R52
    Date: 2017–06–01
  4. By: Feger, Fabian; Pavanini, Nicola; Radulescu, Doina
    Abstract: An increasing number of households installing solar panels raises two challenges for regulators: network financing and vertical equity. We propose an optimal tariff design for policymakers to incentivise solar panel adoptions, while guaranteeing the sustainability and equitable distribution of network costs. We estimate structural models of energy demand and solar panel adoption, using a unique matched dataset on energy consumption, income, wealth, solar panel installations, and building characteristics for 135,000 households in the Canton of Bern (Switzerland) in 2008-2013. Our counterfactuals recommend the optimal solar panel installation cost subsidies and optimal tariffs to achieve various solar energy targets.
    JEL: D12 D31 L94 L98 Q42 Q52
    Date: 2017–12
  5. By: Trinks, Arjan; Ibikunle, Gbenga; Mulder, Machiel; Scholtens, Bert (Groningen University)
    Date: 2017
  6. By: Gioele Figus (CEP, International Public Policy Unit, University of Strathclyde); Patrizio Lecca (European Union); Peter McGregor (Department of Economics, University of Strathclyde); Karen Turner (CEP, International Public Policy Unit, University of Strathclyde)
    Abstract: Previous studies show that improving efficiency in household energy use can stimulate a national economy through an increase and change in the pattern of the aggregate demand. However, this may impact competitiveness. Here we find that in an open region, interregional migration of workers may give additional momentum to the economic expansion, by relieving pressure on the real wage and the CPI. Furthermore, the stimulus will be further enhanced by the greater fiscal autonomy that Scotland is set shortly to enjoy. By considering a range of CGE simulation scenarios we show that there is a tension between the economic stimulus from energy efficiency and the scale of rebound effects. However, we also show that household energy efficiency increases do typically generate a “double dividend†of increased regional economic activity and a reduction in carbon emissions.
    Keywords: energy efficiency, regional development policy, energy rebound, regional fiscal autonomy, general equilibrium
    JEL: C68 D58 Q43 Q48 R28 R58
    Date: 2017–02
  7. By: Martin Larsson (The Institute of Economics, Zagreb)
    Abstract: The European Union Emissions Trading Scheme (EU ETS), while primarily designed to reduce greenhouse gas emissions in an effective and efficient way, is supposed to serve as an instrument promoting investments in clean, low-carbon technologies by way of incentivizing associated innovation activity. Since empirical results concerning the instrument´s capacity of reaching this secondary policy goal are rare, this paper examines the innovation impact of the EU ETS among emissions-intensive companies in the Republic of Croatia. To this end the effects of the instrument on research, development and demonstration (RD&D), adoption, and organizational change are examined. The study accounts for the impacts of various context factors, including firm-external and firm-internal variables. The empirical analysis employs a multiple case study approach. While findings support the assertion that policy-induced innovation effects arise from the pricing of carbon, the innovation-fostering capacity of the instrument remains limited due to continued low levels of policy stringency and predictability. Long-term expectations of market actors appear to play a decisive role in decisions surrounding innovation activity, suggesting that signals of policy commitment are highly influential.
    Keywords: European Union, emissions trading, Croatia, carbon, climate policy
    JEL: O31 Q58
    Date: 2017–10
  8. By: Angelica Gianfreda; Luca Rossini; Francesco Ravazzolo
    Abstract: This paper compares alternative univariate versus multivariate models, probabilistic versus Bayesian autoregressive and vector autoregressive specifications for hourly day-ahead electricity prices, with and without renewable energy sources. The accuracy of point and density forecasts are inspected in four main European markets (Germany, Denmark, Italy and Spain) characterized by different levels of renewable energy power generation. Our results show that the Bayesian VAR specifications with exogenous variables dominate other multivariate and univariate specifications, in terms of both point and density forecasting.
    Keywords: Density Forecasting, Electricity Market, Forecasting, Hourly Prices, Renewable Energies.
    Date: 2018–01
  9. By: Valeria Costantini (Roma Tre University, Rome, Italy); Francesco Crespi (Roma Tre University, Rome, Italy); Elena Paglialunga (Roma Tre University, Rome, Italy); Giorgia Sforna (Roma Tre University, Rome, Italy)
    Abstract: This paper aims to analyse the evolution of energy efficiency systems for the residential sector of EU countries over the past twenty years and the associated process of structural change occurred in EU economies. To this purpose, we develop a set of indicators to measure some significant characteristics of the energy efficiency systems and map European countries in terms of four dimensions: energy system, innovation system, policy mix design and export competitiveness. Building on these indicators we develop a cluster analysis identifying non-arbitrary homogeneous country groups according to several characteristics in order to investigate the co-evolution of technological trajectories, energy use performance and structural change in this specific domain. Results suggest the distinction of EU countries into four groups, that are individually and comparatively scrutinized shedding light on how the four dimensions here considered dynamically evolved and interacted within and across countries. Empirical findings reveal that the design of the domestic policy mix may play a key role in shaping technological trajectories and structural change processes that in turns allow an increase in external competitiveness performance. Such positive impact appears to be closely related to the quality and quantity of international relationships with main economic partners.
    Keywords: eco-innovation; policy mix; international competitiveness; structural change; energy efficiency; residential sector
    JEL: O31 O38 Q48 Q55 Q58
    Date: 2018–01
  10. By: Lionel Nesta (Université Côte d'Azur; GREDEG CNRS; OFCE Sciences Po. Paris; SKEMA Business School); Elena Verdolini (Fondazione ENI Enrico Mattei (FEEM)); Francesco Vona (OFCE Sciences Po. Paris; SKEMA Business School)
    Abstract: This paper analyzes the effect of environmental policies on the direction of energy innovation across countries over the period 1990-2012. Our novelty is to use threshold regression models to allow for discontinuities in policy effectiveness depending on a country's relative competencies in renewable and fossil fuel technologies. We show that the dynamic incentives of environmental policies become effective just above the median level of relative competencies. In this critical second regime, market-based policies are moderately effective in promoting renewable innovation, while command-and-control policies depress fossil based innovation. Finally, market-based policies are more effective to consolidate a green comparative advantage in the last regime. We illustrate how our approach can be used for policy design in laggard countries.
    Keywords: Directed technical change, threshold models, environmental policies, policy mix
    JEL: Q58 Q55 Q42 Q48 O34
    Date: 2018–01
  11. By: Bester, Helmut; Yaofu, Ouyang
    Abstract: This paper analyzes the optimal contract for a consumer to procure a credence good from an expert when (i) the expert might misrepresent his private information about the consumer's need, (ii) the expert might not choose the requested service since his choice of treatment is non-observable, and (iii) limited liability of the expert precludes imposing penalty payments on him. We characterize payments under the optimal contract and show that, compared with the first-best, these induce inefficient undertreatment. We further show that separating diagnosis and treatment increases consumer surplus. Whether it decreases or increases the likelihood of undertreatment, however, depends on the accuracy of the expert's information.
    Keywords: credence goods,non-observable treatments,hidden information,moral hazard,limited liability
    JEL: D82 D83 D86 I11
    Date: 2017
  12. By: Janda, Karel; Kondratenko, Ivan
    Abstract: This paper aims to analyze the possible shale gas development in context of energy security as based on the experience of shale revolution in the USA. It focuses on updating research on shale gas, explaining its specifics, discussing the US model of shale gas development and possible impacts on the EU energy market. It provides a literature review, an overview of the worldwide shale gas development and discusses the most relevant related environmental issues connected with shale gas.
    Keywords: shale gas, European Union, energy security, shale revolution, energy market, US
    JEL: Q42 Q43 Q53
    Date: 2018–01–16
  13. By: Janda, Karel; Kondratenko, Ivan
    Abstract: This paper analyzes the possible shale gas development in the EU in context with raising problem of energy security. Based on the experience of shale revolution in the USA the transfer of US model to the EU is discussed. The results show that shale production affects the price negatively and that US model is successful due to multiple reasons, primarily presence of experienced companies, geological structure and strong regulation rules. This paper shows the unsuitability of the US model for the EU market. After the first enthusiasm for shale plays research in late 2000s the multiple barriers for drilling have risen up; the most significant are the environmental worries; both on governmental and public levels. US companies have lost interest in the EU and moved to other parts of the world. The shale gas development is not able to affect the energy security of the EU on European, international level.
    Keywords: shale gas, European Union, energy security, shale revolution, energy market
    JEL: F15 F52 Q43
    Date: 2018–01–16
  14. By: Halac, Marina; Yared, Pierre
    Abstract: A principal faces an agent who is better informed but biased towards higher actions. She can verify the agent's information and specify his permissible actions. We show that if the verification cost is small enough, a threshold with an escape clause (TEC) is optimal: the agent is allowed to choose any action below a threshold or request verification and the efficient action if sufficiently constrained. For higher costs, however, the principal may require verification only for intermediate actions, dividing the delegation set. TEC is always optimal if the principal cannot commit to inefficient allocations following the verification decision and result.
    Keywords: costly verification; escape clause; optimal delegation
    JEL: D02 D82
    Date: 2018–01
  15. By: Seebauer, Sebastian (JOANNEUM RESEARCH Forschungsgesellschaft mbH)
    Abstract: Rebound effects may undermine current energy policy pathways centred on more energy efficient technologies. The present study analyses why household-level rebound occurs after purchasing an electric vehicle or installing building insulation. Direct and indirect rebound behaviour are operationalised as rearrangements of consumption patterns over time, drawing on concepts of mental accounting and compensatory behaviours. Structural equation modelling is applied to survey data on adopters of electric cars (n=575) and building insulation (n=1,455) in Austria. A complementary longitudinal sample of adopters of electric bicycles (n=111) validates the findings. Pro-environmental values and, albeit more weakly, personal norms for environmentally conscious consumption counteract rebound behaviour. Social norms for environmentally conscious consumption increase rebound. Values of frugality and modesty show no discernible impact. These drivers apply similarly to all energy efficiency technologies investigated. In the case of building insulation, low-income and energy-poor households are more liable to rebound; moreover, habitual heating practices increase rebound. Policy design could leverage the drivers studied here to combat rebound, for instance by prioritising consumer segments with a lower risk of rebound, or by supporting rebound-averse mindsets in public communication. Future research should conduct longitudinal studies to strengthen causal inferences about changes in consumption patterns over time.
    Keywords: Rebound effect; technology adoption; behavioural change; negative spillover; moral licensing
    JEL: E21 Q41
    Date: 2017–11
  16. By: Elise Dupont (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Mécanique, Matériaux et Génie civil (IMMC)); Hervé Jeanmart (UNIVERSITE CATHOLIQUE DE LOUVAIN, l’Ecole Polytechnique de Louvain (EPL) et ’Institut de Mécanique, Matériaux et Génie civil (IMMC)); Louis Possoz; Jean-François Fagnart (Université Saint-Louis, CEREC et UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches économiques et sociales (IRES)); Marc Germain (Université de Lille 3, LEM-CNRS (UMR 9221) et UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Ce numéro spécial de Regards économiques croise les regards d’ingénieurs et d’économistes pour étudier les possibles impacts de la transition énergétique sur la croissance économique. Un effet «localisation» induit par l’expansion des énergies solaire et éolienne et susceptible de réduire leur taux de retour énergétique (TRE) futur est mis en évidence. Les possibles conséquences macroéconomiques de cette baisse du TRE sont analysées, avec une attention particulière pour les mécanismes susceptibles de favoriser ou non une transition «en douceur», c’est-à-dire sans décroissance de l’économie.
    Date: 2017–11–30
  17. By: Kulmer, Veronika (JOANNEUM RESEARCH Forschungsgesellschaft mbH); Seebauer, Sebastian (JOANNEUM RESEARCH Forschungsgesellschaft mbH)
    Abstract: Economy-wide rebound effects may undermine climate policies relying on energy efficiency improvements. However, available rebound estimates diverge widely. We illustrate the crucial role of model assumptions of household heterogeneity and elasticities. A computable general equilibrium model of the Austrian economy incorporates multiple household groups with heterogeneous preferences and analyzes how improving efficiency by 10% affects household fossil fuel consumption. In the base model, economy-wide rebound is 65%; different household groups show direct rebound of 8-12%; thus, indirect rebound mainly contributes to economy-wide rebound. A sensitivity analysis using Monte Carlo simulation varies elasticities between household groups, namely substitutability between material and energy goods, and between different energy goods. In 160 simulation runs, the economy-wide rebound emerges as rather robust. By contrast, direct rebound varies widely among household groups and attains 30%, where reciprocal feedback between groups builds up. In the base model, a fossil fuel tax rate of 43% neutralizes the economy-wide rebound. When elasticities in 180 simulation runs are varied, this tax rate spans from 15% to 80%. Thus, rebound estimates and derived policy advice, such as specific rates and numbers, should be treated with great caution, unless elasticity parameters are reliable and account for heterogeneous consumer preferences.
    Keywords: Economy-wide rebound; sensitivity analysis; CGE model; household heterogeneity
    JEL: C68 D58 Q41
    Date: 2017–11

This nep-reg issue is ©2018 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.