nep-reg New Economics Papers
on Regulation
Issue of 2018‒02‒26
ten papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. The European Union emissions trading scheme and fuel efficiency of fossil fuel power plants in Germany By Germeshausen, Robert
  2. Why Does Emissions Trading under the EU ETS Not Affect Firms' Competitiveness? Empirical Findings from the Literature By Joltreau, Eugénie; Sommerfeld, Katrin
  3. Policies for decarbonizing a liberalized power sector By Newbery, David M G
  4. Delegation of Regulation* By Nilssen, Tore; Kundu, Tapas
  5. Static or dynamic efficiency: Horizontal merger effects in the wireless telecommunications industry By Michał Grajek; Klaus Gugler; Tobias Kretschmer; Ion Mişcişin
  6. International Spillovers and Carbon Pricing Policies By Dolphin, G.; Pollitt, M.
  7. Sharing is not caring: Backward integration of consumers By Spindler, Christian; Woll, Oliver; Schober, Dominik
  8. The efficient use of infrastructure – is Sweden pricing traffic on its roads, railways, waters and airways at marginal costs? By Nilsson , Jan-Eric Nilsson; Isacsson , Gunnar; Haraldsson, Mattias; Nerhagen, Lena; Odolinski, Kristofer; Swärdh, Jan-Erik; Vierth, Inge; Yarmukhamedov, Sherzod; Österström, Johannes
  9. The Effects of Carbon Limits on Electricity Generation and Coal Production By Debabrata Chattopadhyay; Jacek Filipowski; Michael Stanley; Samuel Oguah
  10. Adopt or Innovate: Understanding Technological Responses to Cap-and-Trade By Raphael Calel

  1. By: Germeshausen, Robert
    Abstract: I investigate the impact of the European Union Emissions Trading Scheme (EU ETS) on fuel efficiency of fossil fuel power plants using administrative micro data on power plants in Germany from 2003 to 2012. I find positive efficiency effects in fuel use, leading to a decrease in fuel input of 0.4 percent for an increase in carbon cost of one Euro. A back-of-the-envelope calculation suggests that the reduction in fuel use by fossil fuel power plants due to the introduction of the EU ETS translates into reductions in annual carbon emissions within the German electricity sector by around seven million tonnes in 2012. This represents about 2.4 percent of total annual carbon emissions in the German electricity sector and exemplifies the potential magnitude of efficiency improvements as a measure for reducing carbon emissions.
    Keywords: EU ETS,Carbon Pricing,Fossil Fuel Power Plants,Treatment Intensity
    JEL: D24 L94 Q48 Q58
    Date: 2018
  2. By: Joltreau, Eugénie (Université Paris-Dauphine); Sommerfeld, Katrin (ZEW Mannheim)
    Abstract: Environmental policies may have important consequences for firms' competitiveness or profit-ability. However, the empirical literature shows that hardly any statistically significant effects on firms can be detected for the European Union Emissions Trading Scheme (EU ETS). We explain why there are arguably no significant competitiveness effects on firms, at least not during the first two phases of the scheme (2005-2012). We also reason why the third phase (2013-2020) is likely to reveal similar results. We show that the main explanations for this finding are a large over-allocation of emissions allowances leading to a price drop and the ability of firms to pass costs onto consumers in some sectors. Cost pass-through combined with free allocation, in turn, partly generated windfall profits. In addition, the relatively low importance of energy costs indicated by their average share in the budgets of most manufacturing industries may limit the impact of the EU ETS. Finally, small but significant stimulating effects on innovation have been found so far.
    Keywords: employment effects, firm-level competitiveness, environmental policies, EU ETS
    JEL: Q52 Q58 D22
    Date: 2017–12
  3. By: Newbery, David M G
    Abstract: Given the agreed urgency of decarbonizing electricity and the need to guide decentralized private decisions, an adequate and credible carbon price appears essential. The paper defines and quantifies the useful concept of the break-even carbon price for mature zero-carbon electricity investments. It appears an attractive alternative given the difficulty of measuring the social cost of carbon, but modelling shows it extremely sensitive to projected fuel prices, the rate of interest, and the capital cost of generation options, all of which are very uncertain. This has important implications, and justifies combining a carbon price floor with suitable long-term contracts for electricity investments.
    Keywords: carbon price; electricity; investment; renewables
    JEL: C65 Q42 Q48 Q51 Q54
    Date: 2018–01
  4. By: Nilssen, Tore (Dept. of Economics, University of Oslo); Kundu, Tapas (Oslo Business School, Oslo and Akershus University College of Applied Sciences)
    Abstract: We develop a model to discuss a government's incentives to delegate to bureaucrats the regulation of an industry. The industry consists of a polluting firm with private information about its production technology. Implementing a transfer-based regulation policy requires the government to make use of a bureaucracy; this has a bureaucratic cost, as the bureaucracy diverts a fraction of the transfer. The government faces a trade-off in its delegation decision: bureaucrats have knowledge of the firms in the industry that the government does not have, but at the same time, they have other preferences than the government, so-called bureaucratic drift. We study how the bureaucratic drift and the bureaucratic cost interact to a affect the incentives to delegate. Furthermore, we discuss how partial delegation, i.e., delegation followed by laws and regulations that restrict bureaucratic discretion, increases the scope of delegation. We characterize the optimal delegation rule and show that, in equilibrium, three different regimes can arise that differ in the extent of bureaucratic discretion. Our analysis has implications for when and how a government should delegate its regulation of industry. We find that bureaucratic discretion reduces with bureaucratic drift but that, because of the nature of the regulation problem, the effect of increased uncertainty about the firm's technology on the bureaucratic discretion depends on how that uncertainty is reduced.
    Keywords: Bureaucracy; Delegation; Regulation
    JEL: D02 H10 L51
    Date: 2018–02–01
  5. By: Michał Grajek (ESMT European School of Management and Technology); Klaus Gugler (Vienna University of Economics and Business); Tobias Kretschmer (Ludwig Maximilian University of Munich); Ion Mişcişin (University of Vienna)
    Abstract: This paper studies five mergers in the European wireless telecommunication industry and analyzes their impact on prices and capital expenditures of both merging carriers and their rivals. We find substantial heterogeneity in the relationship between increases in concentration and carriers’ prices. The specifics of each merger case clearly matter. Moreover, we find a positive correlation between the price and the investment effects; when the prices after merger increase (decrease), the investments increase (decrease) too. Thus, we document a trade-off between static and dynamic efficiencies of mergers.
    Keywords: telecom mergers, static and dynamic efficiency, difference-in-difference
    JEL: L22 O33 G34 L96
    Date: 2017–12–19
  6. By: Dolphin, G.; Pollitt, M.
    Abstract: Globally coordinated climate action has resulted in sub-optimal emissions reductions and unilateral (second-best) climate policies have so far provided the bulk of emissions reductions. This paper argues that the development of new unilateral carbon pricing policies was fostered by international signalling and technological spillover effects. The strength of both effects hinges, for each jurisdiction, on trade relations with other CO2-abating jurisdictions. We provide a stylised theoretical discussion in support of our proposition and investigate it using data on a panel of 121national jurisdictions over the period 1990-2014. Results show a strong positive association between import-weighted exposure to CO2-pricing partners and domestic environmental policy. The analysis also supports the technological spillover channel: trade-weighted installed capacity of wind and solar energy seems to prompt implementation of and more stringent carbon pricing policies.
    Keywords: international spillovers, trade, carbon pricing
    JEL: F18 Q56 Q58
    Date: 2018–01–22
  7. By: Spindler, Christian; Woll, Oliver; Schober, Dominik
    Abstract: A new type of player occurs in the sharing economy: a vertically integrated consumer who owns production facilities and has direct market access, often termed "active prosumer". The prosumer faces a trade-off between market transaction cost and substantial strategic potential to influence both market demand and supply by her decisions. We discuss optimal marketing and production decisions in light of this trade-off. An empirical application to the German-Austrian electricity market demonstrates substantial incentives for active market participation by recently added decentralized renewables production. Prosumers can achieve considerable profit increases by switching roles of net market supplier or customer.
    Keywords: Active Prosumer,Capacity Withholding,Self-Supply,Vertical Integration,Consumer Production,Market Participation Cost
    Date: 2018
  8. By: Nilsson , Jan-Eric Nilsson (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Isacsson , Gunnar (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Haraldsson, Mattias (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Nerhagen, Lena (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Odolinski, Kristofer (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Swärdh, Jan-Erik (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Vierth, Inge (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Yarmukhamedov, Sherzod (CTS - Centre for Transport Studies Stockholm (KTH and VTI)); Österström, Johannes (CTS - Centre for Transport Studies Stockholm (KTH and VTI))
    Abstract: This review summarizes recent information about the marginal costs for using Sweden’s infrastructure and the relationship between the sum of marginal costs and charges for each mode. It is demonstrated that the tax on petrol used by private cars is higher than the marginal costs for emissions, accident risk and road wear and tear. The diesel tax is, on the other hand, not sufficient for internalization of heavy vehicles’ externalities. Neither trains nor aircraft or ships pay for their marginal costs. For railways, this confirms previous observations that Swedish track user charges are low in an international context. Except for a low level of charges, several examples are given of the strong motives for differentiation of charges in time and geography. The rapid technical development makes the cost motive for not differentiating the charges increasingly irrelevant.
    Keywords: Marginal cost pricing; roads; railways; waterway infrastructure; air infrastructure
    JEL: R10 R40 R41 R48
    Date: 2018–02–19
  9. By: Debabrata Chattopadhyay; Jacek Filipowski; Michael Stanley; Samuel Oguah
    Keywords: Energy - Coal and Lignite Energy - Electric Power Energy - Energy Policies & Economics Energy - Energy Production and Transportation Energy - Power & Energy Conversion Energy - Renewable Energy
    Date: 2017–10
  10. By: Raphael Calel
    Abstract: Environmental regulations have consistently been found to spur innovation in ‘clean’ technologies, with one significant exception. Past cap-and-trade programs have encouraged adoption of existing pollution control technologies, but had little effect on innovation. Several explanations have been offered, including secondary market failures and a lack of polluter sophistication. In this paper I argue that it likely has more to do with the state of the technologies. Using a newly constructed panel of British companies, I show that the European carbon market - the world’s largest cap-and-trade program - has, contrary to past experience, encouraged innovation rather than adoption. I discuss how these contrasting findings can be reconciled, and the implications for planned reforms.
    Keywords: EU emissions trading system, induced innovation, directed technological change, technology diffusion
    JEL: O30 Q55 Q58
    Date: 2018

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.