nep-reg New Economics Papers
on Regulation
Issue of 2018‒08‒13
fourteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Integrating Renewable Energy with Time Varying Pricing By Makena Coffman; Paul Bernstein; Derek Stenclik; Sherilyn Wee; Aida Arik
  2. Are Residential Electricity Prices Too High or Too Low? Or Both? By Severin Borenstein; James B. Bushnell
  3. Exploring households' responsiveness to energy price changes using microdata By Stuart McIntyre
  4. Equity and the willingness to pay for green electricity in Germany By Andor, Mark Andreas; Frondel, Manuel; Sommer, Stephan
  5. Low rates of free-riding in residential energy efficiency retrofit grants By Collins, Matthew; Curtis, John
  6. Consequences of the Clean Water Act and the Demand for Water Quality By Joseph S. Shapiro; David A. Keiser
  7. Householder' views on the best energy efficiency retrofit incentive mechanisms By Collins, Matthew; Dempsey, Seraphim; Curtis, John
  8. Who upgrades their residential heating system? By Curtis, John; McCoy, Daire; Aravena, Claudia
  9. Synthesizing Cash for Clunkers: Stabilizing the Car Market, Hurting the Environment? By Klößner, Stefan; Pfeifer, Gregor
  10. Return on energy efficiency investments in rental properties By Collins, Matthew; Curtis, John
  11. Estimating the value of flexibility from real options: On the accuracy of hybrid electricity price models By Christian Pape; Oliver Woll; Christoph Weber
  12. The importance of energy price stickiness and real wage inflexibility for the time paths of rebound effects By Gioele Figus; Peter McGregor; J Kim Swales; Karen Turner
  13. Many people never switch telecoms provider; what is different about switchers? By Lunn, Pete; Lyons, Seán
  14. The supply of non-renewable resources By Julien Daubanes; Pierre Lasserre

  1. By: Makena Coffman (UHERO; Department of Urban and Regional Planning, University of Hawaii); Paul Bernstein (UHERO); Derek Stenclik (GE Energy Consulting); Sherilyn Wee (UHERO); Aida Arik (UHERO)
    Abstract: With increasing adoption of intermittent sources of renewable energy, effective integration is paramount to fully realizing societal benefits. This study asks the question, how valuable is residential real-time pricing (RTP) in comparison to time-of-use (TOU) rates to absorb increasing sources of intermittent renewable energy? We couple a detailed power sector model with a residential electricity demand response model to estimate the system and consumer benefits of these two time-varying pricing mechanisms, including greenhouse gas emissions.
    Date: 2018–08
  2. By: Severin Borenstein; James B. Bushnell
    Abstract: Advocates of market mechanisms for addressing greenhouse gases and other pollutants typically argue that it is a necessary step in pricing polluting goods at their social marginal cost (SMC). Retail electricity prices, however, deviate from social marginal cost for many reasons. Some cause prices to be too low–such as pollution externalities–while others cause prices to be too high–such as recovery of fixed costs. Furthermore, because electricity is not storable, marginal cost can fluctuate widely within even a day, while nearly all residential retail prices are static over weeks or months. We study the relationship between residential electricity prices and social marginal cost, both on average and over time. We find that while the difference between the standard residential electricity rate and the utility's average (over hours) social marginal cost is relatively small on average in the US, there is large regional variation, with price well above average SMC in some areas and price well below average SMC in other areas. Furthermore, we find that for most utilities the largest source of difference between price and SMC is the failure of price to reflect variation in SMC over time. In a standard demand framework, total deadweight loss over a time period is proportional to the sum of squared differences between a constant price and SMC, which can be decomposed into the component due to price deviating from average SMC and the component due to the variation in SMC. Our estimates imply if demand elasticity were the same in response to hourly price variation as to changes in average price, then for most utilities the majority of deadweight loss would be attributable to the failure to adopt time-varying pricing. Nonetheless, the majority of deadweight loss nationally would be attributable to a few areas–led by California–where price greatly exceeds average SMC.
    JEL: L51 L94 Q41 Q5
    Date: 2018–06
  3. By: Stuart McIntyre (University of Strathclyde)
    Abstract: How households respond to energy prices is central to understanding the impact of a range of energy policies. Many empirical models and applied research rely upon outdated or generic energy price elasticities of demand, with little attention paid to whether these elasticities are the most appropriate. For example, it is typically assumed that the relevant price for the calculation of these elasticities of demand is the contemporaneous price but, except consumers on pre-payment or 'smart meters', consumers do not observe electricity prices contemporaneously. As this paper shows, what one assumes about the reference price, matters empirically. Furthermore, there are good reasons to think that households of different incomes might respond differently to changing energy prices. This matters given the prominence of price as an instrument of energy policy and the need to understand distributional impacts. This paper explores these issues using a QUAIDS model and data from the UK Living Cost and Food survey. We show that different reference prices produce different elasticity estimates, and that there are important differences in how households respond to energy prices across the income distribution. These results have important implications for understanding the impact of energy prices on households and the environment.
    Keywords: Distributional analysis; energy elasticity; household energy consumption; microdata
    JEL: Q40 Q41 D12
    Date: 2018–07
  4. By: Andor, Mark Andreas; Frondel, Manuel; Sommer, Stephan
    Abstract: The production of electricity on the basis of renewable energy technologies is a classic example of an impure public good. It is often discriminatively financed by industrial and household consumers, such as in Germany, where the energy-intensive sector benefits from a far-reaching exemption rule, while all other electricity consumers are forced to bear a higher burden. Based on randomized information treatments in a stated-choice experiment among about 11,000 German households, we explore whether this coercive payment rule affects households' willingness-to-pay (WTP) for green electricity. Our central result is that reducing inequity by abolishing the exemption for the energyintensive industry raises households' WTP substantially.
    Keywords: stated-choice experiment,behavioral economics,fairness
    JEL: D03 D12 H41 Q20 Q50
    Date: 2018
  5. By: Collins, Matthew; Curtis, John
    Date: 2018
  6. By: Joseph S. Shapiro (Cowles Foundation, Yale University); David A. Keiser (Iowa State University & NBER)
    Abstract: Since the 1972 U.S. Clean Water Act, government and industry have invested over $1 trillion to abate water pollution, or $100 per person- year. Over half of U.S. stream and river miles, however, still violate pollution standards. We use the most comprehensive set of ?les ever compiled on water pollution and its determinants, including 50 million pollution readings from 240,000 monitoring sites and a network model of all U.S. rivers, to study water pollution’s trends, causes, and welfare consequences. We have three main ?ndings. First, water pollution concentrations have fallen substantially. Between 1972 and 2001, for example, the share of waters safe for ?shing grew by 12 percentage points. Second, the Clean Water Act’s grants to municipal wastewater treatment plants, which account for $650 billion in expenditure, caused some of these declines. Through these grants, it cost around $1.5 million (2014 dollars) to make one river-mile ?shable for a year. We ?nd little displacement of municipal expenditure due to a federal grant. Third, the grants’ estimated e?ects on housing values are smaller than the grants’ costs; we carefully discuss welfare implications.
    Keywords: Clean Water Act, Pollution regulation, Water quality, Cost benefit analysis, Cost effectiveness analysis, Hedonic models, Fiscal federalism, Infrastructure
    JEL: H23 H54 H70 Q50 R31
    Date: 2017–01
  7. By: Collins, Matthew; Dempsey, Seraphim; Curtis, John
    Date: 2018
  8. By: Curtis, John; McCoy, Daire; Aravena, Claudia
    Date: 2018
  9. By: Klößner, Stefan; Pfeifer, Gregor
    Abstract: We examine the impact of the EUR 5 billion German Cash-for-Clunkers program on vehicle registrations and respective CO2 emissions. To construct proper counterfactuals, we develop the multivariate synthetic control method using time series of economic predictors (MSCMT) and show (asymptotic) unbiasedness of the corresponding effect estimator under quite general conditions. Using cross-validation for determining an optimal specification of predictors, we do not find significant effects for CO2 emissions, while the stimulus’ impact on vehicle sales is strongly positive. Modeling different buyer subgroups, we disentangle this effect: 530,000 purchases were simply windfall gains; 550,000 were pulled forward; and 850,000 vehicles would not have been purchased in absence of the subsidy, worth EUR 17 billion.
    Keywords: Generalized Synthetic Controls; Cross-Validation; Cash-for-Clunkers; CO2 Emissions
    JEL: C31 C32 C52 D04 D12 H23 H24 L62 Q51
    Date: 2018–07–23
  10. By: Collins, Matthew; Curtis, John
    Date: 2018
  11. By: Christian Pape; Oliver Woll; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen (Campus Essen))
    Abstract: Practitioners in the electricity industry aim to assess the value of power plants or other real options several months or even years ahead of operation. Such a valuation is notably required for hedging purposes. The revenue streams to be earned in the spot market are thereby already secured on future markets. Yet the peculiarities of the electricity market, notably the limited storability of electricity and the incompleteness of the derivative markets, make this problem also theoretically challenging since they prevent the straightforward application of standard approaches for price modeling and for hedging. In this context, the contribution of this article is twofold: (1) We present a novel methodology to model electricity prices based on fundamental expectations and accounting for both short-term and long-term uncertainties. This requires the joint modeling of different commodity prices, namely electricity, fuel and CO2 prices. Moreover price distributions have to be modelled in order to assess the real option value adequately ex ante. Specifically, we compare two different modeling approaches to account for long-term variations in multi-commodity price dynamics. (2) We suggest a test procedure and introduce performance measures to analyze the accuracy of the proposed price modeling. We thereby focus on the practically relevant question, whether the price modeling provides ex ante estimates of the value of the real option that are in line with the ex post realized values. This approach is chosen since no derivative markets exist where the (extrinsic) values for the real options could be observed months or years ahead of actual operation. Nonetheless we show that under well-defined assumptions, the ex-ante values derived using the price model should provide unbiased estimates of the ex post values, which are computed as a sum of hedging and spot exercise revenues. The application part shows results for a state-of-the-art gas power plant. By applying the developed performance measures and test statistics, we find that neither of the two investigated price models clearly outperforms the other.
    Keywords: Electricity price forecasting, Futures market, Hedging, Real option Stochastic optimization∙ Valuation
    JEL: Q41 Q48
  12. By: Gioele Figus (Centre for Energy Policy, University of Strathclyde); Peter McGregor (Department of Economics, University of Strathclyde); J Kim Swales (Department of Economics, University of Strathclyde); Karen Turner (Centre for Energy Policy, University of Strathclyde)
    Abstract: There has been some controversy over the relative sizes of the short- and long-run rebound effects associated with energy efficiency improvements. Theoretical analysis by Wei (2007) and Saunders implied that the rebound effects would always be greater in the long-run than in the short-run. However, Allan et al (2007) and Turner (2009) found evidence from Computable General Equilibrium simulations that contradicted this result. In this paper we systematically explore the impact of energy price stickiness and real wage inflexibility for the evolution of rebound effects. We find that: the degree of energy price, but not wage, stickiness is an important determinant of the time path of rebound effects and of its relative size in the short- and long-runs; and that there is considerable variation in the scale of rebound effects through time, even where short-run rebound effects are lower than in the long-run. However, the most significant finding overall is that rebound reflects the system-wide interaction between energy producing and energy using sectors.
    Keywords: energy efficiency, evolution of eneregy rebound, price stickiness, real wage inflexibility
    JEL: C68 D58 Q43 Q48
    Date: 2018–03
  13. By: Lunn, Pete; Lyons, Seán
    Date: 2018
  14. By: Julien Daubanes (University of Copenhagen); Pierre Lasserre
    Abstract: There exists no formal treatment of non-renewable resource (NRR) supply, systematically deriving quantity as function of price. We establish instantaneous restricted (fixed reserves) and unrestricted NRR supply functions. The supply of a NRR at any date and location depends not only on the local contemporary price of the resource but also on prices at all other dates and locations. Besides the usual law of supply, which characterizes the own-price effect, cross-price effects have their own law. They can be decomposed into a substitution effect and a stock compensation effect. We show that the substitution effect always dominates: A price increase at some point in space and time causes NRR supply to decrease at all other points. Our new—although orthodox—setting takes into account not only NRR supply limitations, but also the heterogeneity of NRR deposits, and the endogeneity of their development and opening. Our analysis extends to NRRs the partial-equilibrium analysis of demand and supply policies. Thereby, it provides a generalization of results about policy-induced changes on NRR markets.
    Keywords: Allocating reserves, Supply theory, Substitution effect, Green paradox, Spatial leakage
    JEL: Q38 D21 H22
    Date: 2018–08

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