nep-reg New Economics Papers
on Regulation
Issue of 2018‒04‒02
seventeen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Carbon Taxes from an Economic Perspective By Claudia Kettner-Marx; Daniela Kletzan-Slamanig
  2. Improving the Market for Flexibility in the Electricity Sector By de Jong, Jacques; Hassel, Arndt; Egenhofer, Christian; Jansen, Jaap; Xu, Zheng
  4. Investment versus Output Subsidies: Implications of Alternative Incentives for Wind Energy By Joseph E. Aldy; Todd D. Gerarden; Richard L. Sweeney
  5. Does the EU renewable energy sector still need a guarantees of origin market? By Jansen, Jaap
  6. Improving Cooperation among EU Member States in Handling Electricity Crises: Lessons for the Regulation on risk-preparedness By Hassel, Arndt; Stroia, Cristian; Egenhofer, Christian; Jansen, Jaap; Behrens, Arno
  7. Rationales for technology-specific RES support: the impaired Brazilian solar expansion By Gustavo Andreão; Michelle Hallacka; Miguel Vazqueza;
  8. Nord Stream 2 – Friend or enemy of energy security in Europe? By Barnes, Alex
  9. The Transition to Renewable Energy By Charles F. Mason; Rémi Morin Chassé
  10. Does energy efficiency affect ship values in the second-hand market? By Roar Adland; Pierre Cariou; François-Charles Wolff
  11. Water Innovation and Water Governance: Adaptive Responses to Regulatory Change and Extreme Weather Events By Jean Guillaume Forand; Gergely Ujhelyi
  12. An efficient and implementable auction for environmental rights By Peyman Khezr; Ian A. MacKenzie
  13. Carbon Taxes at EU Level. Introduction Issues and Barriers By Stefan E. Weishaar
  14. Regulatory Competition in Banking: A General Equilibrium Approach By Gersbach, Hans; Haller, Hans; Papageorgiou, Stylianos
  15. Targeting the Key Player: An Incentive-Based Approach By Mohamed Belhaj; Frédéric Deroïan
  16. The Informational Effects of Tightening Oil and Gas Disclosure Rules By Badia, Marc; Duro, Miguel; Jorgensen, Bjorn N.; Ormazabal, Gaizka
  17. Transfer Pricing and Partial Tax Harmonization By Wolfgang Eggert; Gideon Goerdt; Sebastian Felix Heitzmann

  1. By: Claudia Kettner-Marx (WIFO); Daniela Kletzan-Slamanig (WIFO)
    Abstract: Economic literature generally favours market-based instruments for regulating environmental externalities since they ensure compliance at the least cost to society. Emission taxes have been increasingly introduced internationally, with the focus shifting to CO2 after the adoption of the Kyoto Protocol in 1997. In this paper, the theoretical economic literature on energy and emission taxes is reviewed. The focus is on theoretical recommendations regarding the optimal design of environmental and especially carbon taxes, their performance relative to other instruments, the concept of a double dividend as well as potential competitiveness and distribution effects. Carbon taxation can play a key role in climate policy and for achieving long-term emission reductions. This overview of economic considerations may help in creating a sustainable, effective and efficient regulatory system for reducing emissions.
    Keywords: climate policy, carbon pricing, instrument choice, market-based instruments, environmental tax reform
    Date: 2018–02–23
  2. By: de Jong, Jacques; Hassel, Arndt; Egenhofer, Christian; Jansen, Jaap; Xu, Zheng
    Abstract: Electricity will play a greater role in the transport and building sectors and all decarbonisation scenarios point to the increasing electrification of the energy system. To reach EU climate change targets, however, electricity will need to come increasingly from low carbon sources, especially (but not only) from variable renewable energy sources. Both trends - the electrification of sectors and the need to integrate electricity from variable renewables - mean that the electricity sector should become more flexible. This report reflects the discussions held in the CEPS Energy Climate House Task Force on Creating a Market Design for Flexibility in EU Electricity Markets, which met between April and September 2017. The Task Force formulated a number of recommendations in the areas of short-term and balancing markets; grid reinforcement and cross-zonal capacity allocation; aggregation; priority dispatch; DSOs (distribution system operators); and sectoral integration.
    Date: 2017–10
  3. By: Quentin Hoarau (UP11 - Université Paris-Sud - Paris 11); Yannick Perez (UP11 - Université Paris-Sud - Paris 11)
    Abstract: Photovoltaic generation and electric mobility are both disruptive technologies in the power and transport sectors raising several issues regarding power grids. Precisely, questions about synergistic potentials when combining these two technologies have attracted academics' interest. Recent researches on this topic demonstrate that interactions between photovoltaic generation and electric mobility could decrease the overall burden on power grids, and empower one technology with the others specificities. Indeed, electric vehicles could use photovoltaic energy and benefit from a low-cost and carbon-free electricity to charge. In return, photovoltaic systems would use the bi-directional flexibility of electric vehicles battery to maximize their self-consumption. As these synergies operate, these technologies economic spillovers may improve, stimulating their joint deployment. The objective of this paper is to develop a systematic framework in order to review the different underlying conditions for synergy as they have been studied in the literature. It appears that this synergy was driven by technical characteristics as well as economic aspects. First, this synergy happens in middle-sized spatial configuration (large workplace buildings and charging station) and less obviously at other scales and in situation of technologically diversified system. Second, if it was poorly studied in the literature, the economic context (cooperation level between stakeholders, regulation and policies...) of interactions between photovoltaic generation and electric mobility is crucial for a successful synergy. Finally, we identify several remaining issues about these conditions that further researches could investigate.
    Date: 2018–02–21
  4. By: Joseph E. Aldy; Todd D. Gerarden; Richard L. Sweeney
    Abstract: This paper examines the choice between subsidizing investment or output to promote socially-desirable production. We exploit a natural experiment in which wind farm developers could choose an investment or output subsidy to estimate the impact of these instruments on productivity. Using regression discontinuity and matching estimators, we find that wind farms claiming the investment subsidy produced 10 to 11 percent less power than wind farms claiming the output subsidy, and that this effect reflects subsidy incentives rather than selection. The introduction of investment subsidies caused the Federal government to spend 12 percent more per unit of output from wind farms.
    JEL: H23 Q42 Q48
    Date: 2018–03
  5. By: Jansen, Jaap
    Abstract: The European Commission’s Renewable Energy Directive of 2001 mandated EU member states to develop a system for the guarantees of origin (GOs) of renewable electricity. In 2016, this market had an estimated value of €120 million per year across the EU, of which €100 million was income for generators of renewable electricity. Yet the GO system has been criticised for lacking environmental credibility and having little impact. The current legislation of the GO instrument leads to an oversupplied GO market and a double-counting problem. This enables suppliers who want to launch renewable electricity products, and corporations seeking to make their electricity demand more renewable, to do so in a legally correct and cheap but environmentally questionable way, which leads to little or no extra generation of renewable electricity. The author argues that well-designed reforms could address these weaknesses and provide additional, consumer-driven income streams to help realise new renewable energy projects in the future. He proposes a number of recommendations for action.
    Date: 2017–07
  6. By: Hassel, Arndt; Stroia, Cristian; Egenhofer, Christian; Jansen, Jaap; Behrens, Arno
    Abstract: As part of the “Clean Energy for All Europeans” package, the European Commission has proposed a Regulation on risk-preparedness in the electricity sector that aims to improve cooperation among member states in preventing, preparing for and managing electricity crises. To reap the benefits of improved cooperation compared with the current diverging national approaches, the proposal foresees, inter alia, national risk-preparedness plans, a number of principles for crisis management and ex post crisis evaluation. This Policy Insight analyses the proposal and confronts it with a case study about a recent crisis in South East Europe (in January 2017). Among other conclusions, the findings suggest that the Regulation’s provisions for clear rules and national/regional procedures for crisis management and for evaluating crisis management ex post (i.e. whether the rules were followed) are appropriate, but they may need strengthening.
    Date: 2017–07
  7. By: Gustavo Andreão; Michelle Hallacka; Miguel Vazqueza;
    Abstract: Renewable energy promotion mechanisms have two main dimensions: enhancing project revenue and decreasing costs. Capital costs are one of the most relevant. Brazil is used as case study. Financial tools intertwined with industrial policy were applied: first to successfully promote wind generation, and then for solar photovoltaic (PV). The tools applied for wind were transposed to solar PV. Nevertheless, this has led to important challenges caused by the maladaptation of incentives to the solar PV industry specificities (e.g. high effort of innovation, lower transportation costs, and high importance of soft costs). We show how the use of similar financing support mechanism indistinctly for renewable sources (such as solar and wind) can create actual disincentives. We conclude that the financing mechanism has been fundamental for the viability of renewable energy projects, especially in countries without mature capital markets, where most of the infrastructure has received some sort of government financing support. The design of this mechanism needs to take into account the technological specificities and the national characteristics in order to successfully insert a certain renewable source in a determined country. The framework developed can be applied to other study cases.
    Keywords: Financing, Development Bank, RES-E, Wind, Solar, Mechanism design.
    JEL: D02 D82 G20 L94 O33 Q42
    Date: 2017
  8. By: Barnes, Alex
    Abstract: Nord Stream 2 is criticised on grounds that it undermines the functioning of the European gas market and makes European gas consumers worse off. Its critics also claim that the project has no economic rationale, would reduce security of supply, weaken European solidarity and the Energy Union, and also destabilise Ukraine. This CEPS Policy Insight, contributed by a Nord Stream 2 AG market expert, attempts to counter these criticisms by presenting recent economic analysis bearing on these matters. It explains how Nord Stream 2 cannot undermine the European gas market because of the rules already in place. It concludes that the project will be beneficial to European gas consumers by strengthening gas-to-gas competition between piped gas and LNG for supply to the EU. It also finds that fears that Nord Stream 2 will further destabilise Ukraine are exaggerated and sees a continued role of the country in gas transit to the EU.
    Date: 2017–12
  9. By: Charles F. Mason; Rémi Morin Chassé
    Abstract: The existing economics literature neglects the important role of capacity in the production of renewable energy. To fiill this gap, we construct a model in which renewable energy production is tied to renewable energy capacity, which then becomes a form of capital. This capacity capital can be increased through investment, which we interpret as arising from the allocation of energy, and which therefore comes at the cost of reduced general production. Requiring societal well-being to never decline, we describe how society could optimally elect to split energy in this fashion, the use of non-renewable energy resources, the use of renewable energy resources, and the implied time path of societal well-being. Our model delivers an empirically satisfactory explanation for simultaneous use of non-renewable and renewable energy. We also discuss the optimality of ceasing use of non-renewable energy before the non-renewable resource stock is fully exhausted.
    Keywords: sustainability, energy, resource use
    JEL: C61 Q42 Q56
    Date: 2018
  10. By: Roar Adland (Norwegian School of Economics and Business Administration - Norwegian School of Economics and Business Administration); Pierre Cariou (KEDGE Business School [Talence] - M.E.N.E.S.R. - Ministère de l'Éducation nationale, de l’Enseignement supérieur et de la Recherche); François-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - UN - Université de Nantes, INED - Institut national d'études démographiques)
    Abstract: This paper investigates whether the energy efficiency of vessels is reflected in sales prices in the second-hand market. Using unique data of nearly 1,600 sales transactions over a 21-year period, we consider a hedonic pricing framework in which we control for market conditions, vessel specifications and buyers’ country of origin to identify the specific impact from energy efficiency. Using two indicators for energy efficiency, we find a negative relationship between energy efficiency and sale price with an elasticity around 0.4. Furthermore, our results show a reduction in the influence of energy efficiency on asset values during the drybulk market boom in 2003-2008 compared to the remainder of the sample.
    Keywords: energy efficiency,vessel price,second-hand transactions,bulkers
    Date: 2018–02–12
  11. By: Jean Guillaume Forand (Department of Economics, University of Waterloo); Gergely Ujhelyi (Economics Department, University of Houston)
    Abstract: Every country places restrictions on the political rights of government workers. This includes limitations on expressing political views and taking an active part in political campaigns. Are such restrictions desirable? We present a formal welfare analysis of this question. Bureaucrats’ political activities can be a valuable form of communication between voters and the government, but they may induce policy mistakes, and are susceptible to “noise†from partisan bureaucrats’ innate desire for political expression. Signaling through bureaucrats is least effective when voters do not “trust†in this form of communication, or when politicians have strong control over bureaucrats. In these cases, banning political activities is generally optimal.
    JEL: D73 H11
    Date: 2018–03–19
  12. By: Peyman Khezr (School of Economics, The University of Queensland); Ian A. MacKenzie (School of Economics, The University of Queensland)
    Abstract: This article proposes a simple and efficient auction design to allocate environmental rights, such as tradable pollution permits. We show that if the auctioneer limits the number of bids that each buyer submits—coupled with a simple ex-post supply adjustment rule—then truthful bidding is obtained. Consequently, the uniform-price auction becomes efficient and revenue superior to conventional uniform-price auctions that are currently observed in pollution markets.
    Keywords: auctions; multi-unit; uniform-price; efficiency, pollution.
    JEL: D44 D82 L10 Q50
    Date: 2018–02–27
  13. By: Stefan E. Weishaar
    Abstract: The excitement about concluding the Paris Agreement is giving way to the sobering realisation that a lot more needs to be done to attain its climate policy objective. More and more EU member countries embrace carbon taxes but the national measures differ strongly. In an integrated European market this challenges the level playing field of competing industries and the transboundary nature of regulating a global pollutant and calls for a solution on EU level (or higher). Past attempts to regulate carbon emissions at EU level by fiscal measures have, however, been markedly unsuccessful. This paper therefore examines introduction issues and barriers of a CO2 tax at EU level and offers policy suggestions to move forward.
    Keywords: EU Law, Carbon taxes, Climate change
    Date: 2018–02–23
  14. By: Gersbach, Hans; Haller, Hans; Papageorgiou, Stylianos
    Abstract: We study competition between governments with regard to capital requirements, bank levies and resolution regimes in a general equilibrium setting. In a two-country model, households can invest both domestically and abroad, with banks acting as intermediaries between households and risky technologies. When competing governments set banking regulation, the mechanism at work is driven by the trade-off between accentuating benefits over costs stemming from banking activities, on the one hand, and enhancing banks' competitiveness, on the other hand. Whether or not regulatory competition yields the efficient allocation of resources and risks crucially depends on whether governments compete with one, two or three policy tools.
    Keywords: bank levy; bank resolution; Capital requirements; General Equilibrium; Regulatory competition
    Date: 2018–03
  15. By: Mohamed Belhaj (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales); Frédéric Deroïan (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales)
    Abstract: We consider a network game with local complementarities. A policymaker, aiming at minimizing or maximizing aggregate effort, contracts with a single agent on the network to trade effort change against transfer. The policymaker has to find the best agent and the optimal contract to offer. Our study shows that for all utilities with linear best-responses, it only takes two statistics about the position of each agent on the network to identify the key player: the Bonacich centrality and a weighted measure of the number of closed walks originating from the agent. We also characterize key players under linear quadratic utilities for various contractual arrangements.
    Keywords: key player,network,linear interaction,incentives,contract,limited budget
    Date: 2018–02
  16. By: Badia, Marc; Duro, Miguel; Jorgensen, Bjorn N.; Ormazabal, Gaizka
    Abstract: We exploit two regulatory shocks to examine the informational effects of tightening pre-existing mandatory disclosure rules. Canadian Rule NI 51-101 and the US "Modernization of Oil and Gas Reporting" introduced a quasi-identical tightening of the rules governing oil and gas reserve disclosures in Canada and the US at different times. Both in Canada and the US, we document significant changes in firms' reporting outcomes when the new regulation is introduced. We also find that the reserve disclosures filed under the new regulations are more closely associated with stock price changes and with decreases in bid-ask spreads. Our findings are robust to controlling for other confounding factors such as time trends, other information disclosed simultaneously, financial reporting incentives, mispricing and monitoring efforts.
    Keywords: Disclosure of Oil; Disclosure Rules; Gas Reserves
    JEL: M41
    Date: 2018–03
  17. By: Wolfgang Eggert; Gideon Goerdt; Sebastian Felix Heitzmann
    Abstract: This paper investigates regulation on corporate income taxation with multinationals and transfer pricing. We recommend full cooperation within the EU if profit shifting costs are sufficiently low and cannot be influenced to a large extend. Otherwise, high profit shifting costs or the potential to significantly influence them imply that partial cooperation is beneficial for all member states.
    Keywords: tax harmonization, transfer pricing, multinational, profit shifting
    JEL: F21 H21 H26
    Date: 2018

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