nep-reg New Economics Papers
on Regulation
Issue of 2018‒05‒21
thirteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. The Static-Dynamic Efficiency Trade-off in the US Rail Freight Industry: Assessment of an Open Access Policy By Coublucq, Daniel; Ivaldi, Marc; Mccullough, Gerard J.
  2. A Mechanism for Institutionalised Threat of Regulation: Evidence from the Swedish District Heating Market By Bonev, Petyo; Glachant, Matthieu; Söderberg, Magnus
  3. EU ETS-broken beyond repair ? An analysis based on FASTER principles By Xavier Timbeau; Pawel Wiejski
  4. Investment versus Output Subsidies: Implications of Alternative Incentives for Wind Energy By Aldy, Joseph; Gerarden, Todd; Sweeney, Richard
  5. The causal linkages between renewable electricity generation and economic growth in South Africa. By Khobai, Hlalefang
  6. The Efficiency Consequences of Heterogeneous Behavioral Responses to Energy Fiscal Policies By Houde, Sebastien; Aldy, Joseph E.
  7. Shock Value: Bill Smoothing and Energy Price Pass-Through By Catherine Hausman
  8. Variable Pricing and the Cost of Renewable Energy By Imelda; Matthias Fripp; Michael J. Roberts
  9. Explaining Trade Flows in Renewable Energy Products: The Role of Technological Development By Mai Miyamoto; Kenji Takeuchi
  10. An Economic Anatomy of Optimal Climate Policy By Moreno-Cruz, Juan B.; Wagner, Gernot; Keith, David w.
  11. Simulation and Evaluation of Zonal Electricity Market Designs By Hesamzadeh, Mohammad Reza; Holmberg, Pär; Sarfati, Mahir
  12. Optimal Policy and Network Effects for the Deployment of Zero Emission Vehicles * By Jean Pierre Ponssard; Guy Meunier
  13. The impact of urban public transportation evidence from the Paris region By Thierry Mayer; Corentin Trevien

  1. By: Coublucq, Daniel; Ivaldi, Marc; Mccullough, Gerard J.
    Abstract: Considering the US railroad industry, which is characterized by seven integrated firms that provide freight services on tracks they own and maintain, this paper provides a structural model that allows to evaluate the potential effects of opening the rail network to new firms on prices and investment incentives. In particular, we propose a framework for analyzing the tension between static efficiency (pricing behavior) and dynamic efficiency (investment behavior). The investment behavior is rendered endogenous by means of a dynamic model where the current investment depends on the expected future profits. We then use a forward simulation procedure to analyze the effect of an open-access market structure where a new firm uses the network of one of the biggest railroad firm. Under a simple access charge equaled to the marginal cost of access, investment in network infrastructure decreases by 10% per year, leading to a significant decrease in network quality over time. Under this setting, despite the increase of price competition, the decrease in network quality leads to a fall in consumer welfare. Other types of (more evolved) access charges might even allow to relax the tension between static efficiency and dynamic efficiency, allowing more price competition while preserving investment incentives. This topic deserves further research and is beyond the scope of this paper.
    Keywords: competition; dynamic structural models; investment; open-access; railroad industry; static-dynamic efficiency trade-off
    JEL: L10 L51 L92
    Date: 2018–04
  2. By: Bonev, Petyo; Glachant, Matthieu; Söderberg, Magnus
    Abstract: This is the first study that uses a natural experiment to test the Regulatory Threat Hypothesis. We use a unique novel dataset on unregulated Swedish local district heating monopolists and a new measure of threat - customer complaints. Our results support the Regulatory Threat Hypothesis: firms reduce prices when they feel threatened by price regulation. We also find evidence that (otherwise unrelated) monopolists homogenize locally prices to reduce complaints and thus to reduce threat of regulation. This mechanism is related to Yardstick competition and to behavioral theories of fair pricing.
    Keywords: Regulatory Threat, Monopoly, Price Setting, Spatial Interaction, Natural Experiment
    JEL: L11 L12
    Date: 2018–05
  3. By: Xavier Timbeau (Observatoire français des conjonctures économiques); Pawel Wiejski
    Abstract: The EU ETS is one of the main European climate policies, covering 45 percent of EU’s greenhouse gas emissions. Its main goal is to limit emissions cost-effectively, and to trigger innovations using a strong price signal, making low-carbon technologies more competitive. While emissions reduction targets for 2020 have already been achieved, the exact role of the ETS in this success remains controversial. The assessment is crucial, as more and more countries and regions plan to adopt similar policies to achieve their targets expressed in the Intended Nationally Determined Contributions, communicated at the Paris Conference of the Parties. The EU ETS, as the longest running and largest carbon market in the world, will undoubtedly serve as a point of reference. This paper attempts to provide a comprehensive analysis of the policy. First part outlines the historical development of emission trading systems, as well as the development of the EU ETS since its inception in 2005. Second part uses FASTER principles developed by the World Bank and the OECD to perform a multi-criteria, qualitative analysis of the EU ETS in its current form. Third part concentrates on the upcoming revision for the fourth phase, evaluating whether the proposals correctly address the policy’s shortcomings. It also provides some alternative reform proposals.
    Keywords: Cap and trade; EU ETS; Market stability reserve; Carbon price
    JEL: H23 H87 Q56
    Date: 2017–10
  4. By: Aldy, Joseph (Harvard University); Gerarden, Todd (Harvard University); Sweeney, Richard (Boston College)
    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: Khobai, Hlalefang
    Abstract: Knowledge of the direction of causality between electricity generation from renewables and economic growth is essential if energy policies which will support economic growth of the country are to be devised. This study explores the causal relationship between electricity generated from the renewables and economic growth in South Africa using carbon dioxide emissions, employment and capital as the additional variables. The study uses the Johansen co-integration model to detect the long run relationship between the variables and the Vector Error Correction Model (VECM) to determine the direction of causality. The findings from Johansen co-integration evidenced a long run relationship between electricity generated from renewables, economic growth, carbon dioxide emissions, employment and capital. The VECM revealed unidirectional causality running from electricity generated from renewables to economic growth. The findings indicate that electricity generation from renewables enhance economic growth. Therefore, the government should make appropriate efforts to select energy policies that do not negatively affect economic growth.
    Keywords: Electricity generation, carbon dioxide emissions, economic growth
    JEL: C32 D04 Q01 Q42 Q47
    Date: 2018–05–03
  6. By: Houde, Sebastien (University of Maryland); Aldy, Joseph E. (Harvard University)
    Abstract: The behavioral responses to taxes and subsidies are often subject to various behavioral biases and transaction costs—what we define as “microfrictions.†We develop a theoretical framework to show how these microfrictions—and their heterogeneity across the population and policy instruments—affect the design of Pigouvian policies. Standard Pigouvian pricing still holds with transaction costs, but requires adjustment with behavioral biases. We use transaction-level data from the US appliance market to estimate the heterogeneous behavioral responses to an array of energy fiscal policies and to quantify microfrictions. We then assess optimal fiscal policies and find that it is rarely optimal to couple a Pigouvian tax on energy with an investment subsidy in this context. We also find that energy labels—intended to increase the salience of energy information—can interact in perverse ways with both taxes and subsidies.
    JEL: H31 Q48 Q58
    Date: 2017–12
  7. By: Catherine Hausman
    Abstract: Energy price pass-through receives a lot of academic attention, for several reasons: energy prices can be highly volatile, they impact every consumer and every industry in the economy, and they are frequently impacted by regulations including gas taxes and carbon regulations. Like the pass-through literature in general, the energy pass-through literature focuses on pass-through to marginal prices. However, multi-part pricing is common in energy retail pricing. In this paper, I examine pass-through to retail natural gas prices. I show that marginal prices exhibit one-to-one pass-through, but fixed fees exhibit negative pass-through. This is consistent with the stated desire by utilities and price regulators to prevent "bill shock." The results have implications for how pass-through is estimated, as well as for understanding the implications of proposed alternative pricing structures for regulated utilities.
    JEL: L11 L95 Q41
    Date: 2018–04
  8. By: Imelda (Department of Economics, University of Hawaii at Manoa); Matthias Fripp (Department of Electrical Engineering, University of Hawaii at Manoa; UHERO; Renewable Energy and Island Sustainability); Michael J. Roberts (Department of Economics, University of Hawaii at Manoa; UHERO; Sea Grant at University of Hawaii at Manoa)
    Abstract: On a levelized-cost basis, solar and wind power generation are now competitive with fossil fuels, and still falling. But supply of these renewable resources is variable and intermittent, unlike traditional power plants. As a result, the cost of using flat retail pricing instead of dynamic, marginal-cost pricing--long advocated by economists--will grow. We evaluate the potential gains from dynamic pricing in high-renewable systems using a novel model of power supply and demand in Hawai'i. The model breaks new ground in integrating investment in generation and storage capacity with chronological operation of the system, including an account of reserves, a demand system with different interhour elasticities for different uses, and substitution between power and other goods and services. The model is open source and fully adaptable to other settings. Consistent with earlier studies, we find that dynamic pricing provides little social benefit in fossil-fuel-dominated power systems, only 2.6 to 4.6 percent of baseline annual expenditure. But dynamic pricing leads to a much greater social benefit of 8.5 to 23.4 percent in a 100 percent renewable power system with otherwise similar assumptions. High renewable systems, including 100 percent renewable, are remarkably affordable. The welfare maximizing (unconstrained) generation portfolio under the utility's projected 2045 technology and pessimistic interhour demand flexibility uses 79 percent renewable energy, without even accounting for pollution externalities. If overall demand for electricity is more elastic than our baseline (0.1), renewable energy is even cheaper and variable pricing can improve welfare by as much as 47 percent of baseline expenditure.
    Keywords: Renewable energy, variable pricing, storage, demand response, optimization
    JEL: Q41 Q42 Q53
    Date: 2018–05
  9. By: Mai Miyamoto (Graduate School of Economics, Kobe University); Kenji Takeuchi (Graduate School of Economics, Kobe University)
    Abstract: This study investigates the trade flows of renewable energy products, focusing on the role of technological development. We estimate a gravity model that explains the trade flows among 35 OECD countries from 1996 to 2010 using patent counts as a proxy for technology level. We compare the pattern of the trade flows between two representative renewable energy products: those related to wind and solar electricity generation. The results suggest that technological level is correlated with trade flows and this correlation is weaker in the model for solar products than that for wind products. When we include China in the sample in estimation, the technological level of solar energy is no longer correlated with the exports of solar power products.
    Keywords: Renewable energy products; Trade; Technological development; Patent; Gravity model
    JEL: F14 O33 Q55
    Date: 2018–05
  10. By: Moreno-Cruz, Juan B. (Georgia Institute of Technology); Wagner, Gernot (Harvard University); Keith, David w. (Harvard University)
    Abstract: This paper introduces geoengineering into an optimal control model of climate change economics. Together with mitigation and adaptation, carbon and solar geoengineering span the universe of possible climate policies. We show in the context of our model that: (i) a carbon tax is the optimal response to the unpriced carbon externality only if it equals the marginal cost of carbon geoengineering; (ii) the introduction of solar geoengineering leads to higher emissions yet lower tempera- tures, and, thus, increased welfare; and (iii) solar geoengineering,in effect, is a public goods version of adaptation that also lowers temperatures.
    JEL: D90 O44 Q48 Q54 Q58
    Date: 2017–06
  11. By: Hesamzadeh, Mohammad Reza (Royal Institute of Technology (KTH)); Holmberg, Pär (Research Institute of Industrial Economics (IFN)); Sarfati, Mahir (Research Institute of Industrial Economics (IFN))
    Abstract: Zonal pricing with countertrading (a market-based redispatch) gives arbitrage opportunities to the power producers located in the export-constrained nodes. They can increase their profit by increasing the output in the dayahead market and decrease it in the real-time market (the inc-dec game). We show that this leads to large inefficiencies in a standard zonal market. We also show how the inefficiencies can be significantly mitigated by changing the design of the real-time market. We consider a two-stage game with oligopoly producers, wind-power shocks and real-time shocks. The game is formulated as a two-stage stochastic equilibrium problem with equilibrium constraints (EPEC), which we recast into a two-stage stochastic Mixed-Integer Bilinear Program (MIBLP). We present numerical results for a six-node and the IEEE 24-node system.
    Keywords: Two-stage game; Zonal pricing; Wholesale electricity market; Bilinear programming
    JEL: C61 C63 C72 D43 L13 L94
    Date: 2018–05–03
  12. By: Jean Pierre Ponssard (Department of Economics, École Polytechnique, Palaiseau Cedex, 91128, France - affiliation inconnue); Guy Meunier (CIRED - Centre International de Recherche sur l'Environnement et le Développement - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Date: 2018–04–24
  13. By: Thierry Mayer (Département d'économie); Corentin Trevien
    Abstract: We use the natural experiment provided by the opening and progressive extension of the Regional Express Rail (RER) between 1970 and 2000 in the Paris metropolitan region, and in particular the departure from the original plans due to budget constraints and technical considerations, to identify the causal impact of urban rail transport on firm location, employment and population growth. We apply a difference-in-differences method to a particular subsample, selected to minimize the endogeneity that is routinely found in the evaluation of the effects of transport infrastructure. We find that the RER opening caused a 8.8% rise in employment in the municipalities connected to the network between 1975 and 1990. While we find no effect on overall population growth, our results suggest that the arrival of the RER may have increased competition for land, since high-skilled households were more likely to locate in the vicinity of a RER station.
    Keywords: Location; Urban form; Transport infrastructure; Subway
    JEL: D04 H43 R42
    Date: 2017–11

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