nep-reg New Economics Papers
on Regulation
Issue of 2018‒04‒30
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. The Effect of Infrastructure on Worker Mobility: Evidence from High-Speed Rail Expansion in Germany By Daniel F. Heuermann; Johannes F. Schmieder
  2. Coordinating Separate Markets for Externalities By Jose-Miguel Abito; Christopher R. Knittel; Konstantinos Metaxoglou; André Trindade
  3. The impact of China’s electricity deregulation on coal and power industries: Two-stage game modeling approach By HuiHui Liu; ZhongXiang Zhang; ZhanMing Chen; DeSheng Dou
  4. Analysing long-term interactions between demand response and different electricity markets using a stochastic market equilibrium model By Bertsch, Valentin; Devine, Mel; Sweeney, Conor; Parnell, Andrew C.
  5. Including Forestry in an Emissions Trading Scheme: Lessons from New Zealand By Thomas Carver; Patrick Dawson; Suzi Kerr
  6. Paying for Water in Ontario's Cities: Past, Present, and Future By Harry Kitchen
  7. The role of power-to-gas in the future energy system: how much is needed and who wants to invest? By Lynch, Muireann Á; Devine, Mel; Bertsch, Valentin
  8. Some reflections on policy mix in the EU low-carbon strategy By Massimiliano Corradini; Valeria Costantini; Anil Markandya; Elena Paglialunga; Giorgia Sforna
  9. How to road price in a world with electric vehicles and government budget constraints By Wangsness, Paal Brevik
  10. The relationship between construction quality and energy efficiency in newly built residential buildings By Agnieszka Zalejska-Jonsson; Rosane Hungria-Gunnelin
  11. Carbon footprint and rebound of large scale building integrated energy production By Juudit Ottelin; Jussi Vimpari; Seppo Junnila
  12. Estimating Urban Water Demand Elasticities using Regression Discontinuity: A Case of Tangerang Regency, Indonesia By Muhammad Halley Yudhistira; Prani Sastiono; Melly Meliyawati

  1. By: Daniel F. Heuermann; Johannes F. Schmieder
    Abstract: We use the expansion of the high-speed rail network in Germany as a natural experiment to examine the causal effect of reductions in commuting time between regions on the commuting decisions of workers and their choices regarding where to live and where to work. We exploit three key features in this setting: i) investment in high-speed rail has, in some cases dramatically, reduced travel times between regions, ii) several small towns were connected to the high-speed rail network only for political reasons, and iii) high-speed trains have left the transportation of goods unaffected. Combining novel information on train schedules and the opening of high-speed rail stations with panel data on all workers in Germany, we show that a reduction in travel time by one percent raises the number of commuters between regions by 0.25 percent. This effect is mainly driven by workers changing jobs to smaller cities while keeping their place of residence in larger ones. Our findings support the notion that benefits from infrastructure investments accrue in particular to peripheral regions, which gain access to a large pool of qualified workers with a preference for urban life. We find that the introduction of high-speed trains led to a modal shift towards rail transportation in particular on medium distances between 150 and 400 kilometers.
    JEL: J61 R12 R23 R40
    Date: 2018–04
  2. By: Jose-Miguel Abito; Christopher R. Knittel; Konstantinos Metaxoglou; André Trindade
    Abstract: We show that inefficiencies from having separate markets to correct an environmental externality are significantly mitigated when firms participate in an integrated product market. Firms take into account the distribution of externality prices and reallocate output from markets with high prices to markets with low prices. Investment in cleaner and more efficient capacity serves as an additional mechanism to reallocate output, which increases the marginal benefit of investment, and consequently improves longer-term outcomes. Using data from an integrated wholesale electricity market, we estimate a dynamic structural model of production and investment to bound the loss from separate markets for carbon dioxide emissions, and quantify the extent to which optimal investment can compensate for the loss. Despite the lack of the “invisible hand” of a single emissions market, profit-maximizing firms can play a crucial role in coordinating otherwise uncoordinated environmental regulations.
    JEL: L2 L5 L94 Q48 Q53 Q54
    Date: 2018–04
  3. By: HuiHui Liu (Academy of Chinese Energy Strategy, China University of Petroleum, Beijing); ZhongXiang Zhang (Ma Yinchu School of Economics and China Academy of Energy, Environmental and Industrial Economics, Tianjin University, Tianjin); ZhanMing Chen (Department of Energy Economics, School of Economics, Renmin University of China, Beijing); DeSheng Dou (Academy of Chinese Energy Strategy, China University of Petroleum, Beijing)
    Abstract: The regulated price mechanism in China’s power industry has attracted much criticism because of its incapability to optimize the allocation of resources. To build an “open, orderly, competitive and complete” power market system, the Chinese government launched an unprecedented marketization reform in 2015 to deregulate the electricity price. This paper examines the impact of the electricity price deregulation in the industry level. We first construct two-stage dynamic game models by taking the coal and coal-fired power industries as the players. Using the models, we compare analytically the equilibriums with and without electricity regulation, and examine the changes in electricity price, electricity generation, coal price and coal traded quantity. The theoretical analyses show that there are three intervals of the regulated electricity sales prices which influence the impact of electricity price deregulation. Next, we collect empirical data to estimate the parameters in the game models, and simulate the influence of electricity deregulation on the two industries in terms of market outcome and industrial profitability. Our results suggest that the actual regulated electricity price falls within the medium interval of the theoretical results, which means the price deregulation will result in higher electricity sales price but lower coal price, less coal traded amount and less electricity generation amount. The robustness analysis shows that our results hold with respect to the electricity generation efficiency and price elasticity of electricity demand.
    Keywords: China, electricity deregulation, reform, coal industry, power industry
    JEL: Q41 Q43 Q48 L94 L98
    Date: 2018–04
  4. By: Bertsch, Valentin; Devine, Mel; Sweeney, Conor; Parnell, Andrew C.
    Date: 2018
  5. By: Thomas Carver (Motu Economic and Public Policy Research); Patrick Dawson (Motu Economic and Public Policy Research); Suzi Kerr (Motu Economic and Public Policy Research)
    Abstract: New Zealand is the first, and still the only, country to include forest landowners as full and, in some cases, mandatory participants in a greenhouse gas (GHG) emissions trading scheme (ETS), the NZ ETS. Carbon sequestration by forestry continues to be an important part of New Zealand’s contribution to its global obligations to reduce emissions. This paper describes the policy changes to the NZ ETS since 2008 that directly affect forestry; assesses the effectiveness of the scheme; explores who is benefiting from it; and outlines issues facing forestry in the NZ ETS moving forward. We find that forest owners have responded to the financial incentives from the NZ ETS in a rational way. Both afforestation and deforestation decisions appear to have been influenced by the emissions price and/or expectations about the emissions price in the future. However, the scheme has been beset by challenges. The collapse in the global carbon price and, associated with this, the proliferation of international Kyoto credits of questionable environmental integrity, combined with the government decision to delay New Zealand’s delink from international markets until 2015, greatly reduced the price signal for forestry from the NZ ETS from 2012 to 2015. A weak price signal, coupled with ongoing policy uncertainty surrounding the NZ ETS, has limited the effectiveness of the scheme in achieving its forestry goals. Prospects going forward are more positive particularly if the current reform of the ETS can create clear predictable price signals and better manage the complexity of forestry rewards and liabilities, particularly as faced by smaller landowners who are not professional foresters but could potentially participate and reforest.
    Keywords: Water emissions trading, environment, New Zealand, Motu, carbon markets, evaluation
    JEL: Q23 Q54 Q58
    Date: 2017–07
  6. By: Harry Kitchen (University of Toronto)
    Abstract: Throughout much of the 20th century, water was seen as plentiful and water rates did not promote conservation. Today, water is treated as a relatively scarce resource and governments are concerned about financing new and rehabilitated infrastructure. However, most municipalities still do not set prices for water at levels that would encourage conservation, thereby allowing the overconsumption of water, and leading to increased demand for expensive infrastructure. Setting efficient prices for water, sewage collection and treatment, and stormwater runoff would include (1) multi-part pricing for water to accommodate capacity constraints, economies of scale, and peak-load demand; (2) greater use of meters and volumetric pricing for residential and commercial sewer usage; and (3) stormwater user fees based on the volume of runoff. In smaller or remote municipalities, the amalgamation, regionalization, or privatization of water and sewer systems could lead to greater efficiencies. Meanwhile, the Province should set water safety standards, coordinate water utility systems, and put in place a regulatory framework that would support necessary but unpopular increases in water rates.
    Keywords: municipalities, water systems, sewer systems, stormwater, full-cost pricing
    JEL: H41 H71 L95
    Date: 2017–11
  7. By: Lynch, Muireann Á; Devine, Mel; Bertsch, Valentin
    Date: 2018
  8. By: Massimiliano Corradini; Valeria Costantini; Anil Markandya; Elena Paglialunga; Giorgia Sforna
    Abstract: The EU low-carbon strategy includes different complementary policies. Potential interactions between instruments and timing of their implementation can influence the cost and likelihood of achieving the targets. We test the interactions between the three main pillars of the EU strategy through a dynamic CGE model (GDynEP) with a time horizon of 2050. Main results are: i) going for the unilateral EU carbon mitigation target without any complementary technological policy will produce large economic losses; ii) by investing in clean energy technologies (energy efficiency and renewable energy) with a carbon tax revenue recycling mechanism, these losses will substantially decrease; iii) when complementary clean energy technology policies are implemented, the optimal timing of binding targets changes; iv) the higher the contribution to clean energy technologies, the larger the economic gains in early adoption of challenging abatement targets.
    Keywords: EU low-carbon strategy; dynamic CGE model; GTAP; abatement optimal timing; policy mix design; clean energy technologies
    JEL: H21 O32 Q47 Q54
    Date: 2018–04
  9. By: Wangsness, Paal Brevik (Institute of Transport Economics – Norwegian Centre for Transport Research)
    Abstract: The road transport market has many market imperfections such as local and global pollution, accidents, noise and road wear. Electric vehicles (EVs) avoid some of these by not having any tailpipe CO2 emissions, but they still contribute to external costs such as congestion. Our research questions are: What characterizes the set of secondbest road prices for internalizing external costs from driving EVs and ICEVs when you also have distortionary labor taxes and binding government budget constraints? How are these prices affected by distortions elsewhere in the economy? How does this second-best pricing fit with government set goals of reducing CO2 emissions? This paper further develops an analytical framework for assessing first- and secondbest road prices on vehicle kilometers, extending it to include EVs and externalities that vary geographically and by time of day. Expressions for the optimal road prices are derived analytically, and then solved numerically. We find that optimal road prices largely vary with external cost, giving high prices for driving in cities during peak hours, and relatively low prices for driving in rural areas. We also see that the road prices’ interactions with the rest of the fiscal system have implications for determining the optimal set of road prices. However, the optimal set of road prices leads to little or no reductions in carbon emissions with the currently recommended social cost of carbon estimates. This implies that any required reduction in CO2emissions will require a shadow price that exceeds the current social cost estimate.
    Keywords: road pricing; road transport externalities; electric vehicles; government budget; constraints; tax interaction; CO2 emission constraints
    JEL: H21 H23 Q54 Q58 R41 R48
    Date: 2018–04–11
  10. By: Agnieszka Zalejska-Jonsson; Rosane Hungria-Gunnelin
    Abstract: Considering the climate change and urgent need for adaption of a new approach in building design and construction, the feedback from users is a highly valuable data. It is imperative to gather, analyse, and compare data on measured consumption for the purpose to increase our understanding about energy performance. Earlier research results indicate that energy and environmental targets are hard to deliver post-occupancy. It has been suggested that difference in the expected and delivered performance might be related to problems or lack of commissioning, inadequate building operation and even occupants’ behaviour. In this paper, we intent to test the assumption that the quality of the designed building is expressed in its final product. We examine a number of building features where end-users reported problems and discuss their potential effect on the buildings’ energy performance. We investigate if the occurrence of problem varies depending on climate zone, production year, building size and energy performance class. The data for this study was collected through survey. A total of 1,563 letters were posted with regular mail to all chairmen of condominium boards of residential estates built in Sweden between 2006 and 2014. We received 436 responses. We analysed data with help of descriptive statistics, principle component analysis (PCA) and Mann-Whitney test. PCA is used to group factors describing different quality problems and the Mann-Whitney test is used to investigate the significance level of differences in occurrence of specific-feature problems within subgroups. The results suggest that problems which occur in the new produced residential buildings are related to construction quality and may have significant effect on energy performance. The analysis of data suggests that new construction faces problem with building air tightness (especially the quality of windows and doors) and installations (HVAC), which have a direct impact on energy performance. Moreover, we observe that quality varies over time and may be dependent on market conditions.
    Keywords: Condominium apartments; Construction quality; Energy Performance; Residential Real Estate
    JEL: R3
    Date: 2017–07–01
  11. By: Juudit Ottelin; Jussi Vimpari; Seppo Junnila
    Abstract: Building integrated renewable energy production, such as solar energy solutions, reduce the greenhouse gas emissions (GHG) caused by operational energy consumption of buildings. What is less understood, however, is how the investment in these sort of energy solutions affects the overall GHG emissions caused by the person or the company that makes the investment.In general, all economic activities cause environmental impacts. Thus, it has been suggested that the boundaries of environmental assessments should not be based on physical boundaries, but rather monetary budgets. For example, carbon footprints of consumers have revealed that investments in energy efficiency do not only reduce the GHG emissions caused by energy consumption, but also the emissions caused by consumption of other goods and services. This is due to the reality that consumers must withdraw the funds for the investment from some other purposes. However, when the investment in energy efficiency starts to make profit, the situation is reversed. The money saved from declining energy consumption is used on goods and services, which again increases the GHG emissions. The phenomenon is called "the environmental rebound effect". The rebound effect caused by an investment is usually negative, meaning additional GHG reductions. The rebound effect caused by (energy) savings is usually positive, meaning additional GHG emissions prompted by the new consumption enabled by the savings.The purpose of this study is to assess the carbon footprint, and demonstrate the rebound effects over time, caused by investments in large scale building integrated solar energy production. The study takes into account the embodied GHG emissions in the new energy system. The rebound effects are estimated with various assumptions about the alternative consumption or investment. The study highlights why the monetary and time dimensions are important, when considering the overall environmental impacts of green investments.
    Keywords: building integrated energy production; carbon footprint; Rebound effect; Solar Energy
    JEL: R3
    Date: 2017–07–01
  12. By: Muhammad Halley Yudhistira (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Prani Sastiono (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI)); Melly Meliyawati (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia (LPEM FEB UI))
    Abstract: We estimate the effect of water tariff adjustment in Tangerang city, Indonesia in November 2014 on monthly water consumption. Due to typical water-block pricing strategy, estimating water demand elasticities are likely to be complex. A unique panel monthly water consumption dataset at consumer level in Tangerang regency covering the period of January 2011–September 2016 is used. Using regression discontinuity framework, we find a 13% average tariff increase reduces 4% household water consumption on average. Further, our estimates suggest the tariff adjustment provides no effects on high-income households, industrial, and commercial consumers. We also find more elastic response of water consumption in short-run period than in long-run.
    Keywords: Water Demand Elasticities — Urban Water — Regression Discontinuity Design — Indonesia
    JEL: L95 R22 R53
    Date: 2018–03

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