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on Regulation |
| By: | Boampong, Richard (University of Alberta, Department of Economics); Brown, David P. (University of Alberta, Department of Economics) |
| Abstract: | We investigate the impact of retail rate design on the investment incentives, avoided utility costs, and cost shifting concerns associated with rooftop solar and rooftop solar plus battery storage systems that are located behind-the-meter. We consider recently proposed changes to California's time-of-use pricing policy for commercial and industrial consumers which shifts on-peak prices from midday hours to the network constrained evening hours. We find that the shift in on-peak hours decreases investment in rooftop solar and has an ambiguous effect on storage investment. We demonstrate that storage reduces utility network costs, but the magnitude of this effect varies critically with the prevailing retail rate structure. Importantly, we show that a shift in the on-peak period to the constrained evening hours does not always elevate the avoided network cost associated with a battery system when demand charges are imposed on a consumer's private maximum demand. We illustrate that this issue can be alleviated by imposing demand charges on consumption that arises in system-constrained hours. We find that cost-shifting concerns are substantially reduced under the proposed rates and tariffs that have a heavy reliance on demand charges. We illustrate that while storage reduces the utility's costs, it can also increase cost-shifting concerns. These findings demonstrate the potential trade-offs between maximizing avoided costs and minimizing cost-shifting concerns under commonly employed retail rate structures. |
| Keywords: | Retail Rates; Electricity; Regulation; Storage; Solar PV |
| JEL: | L40 L51 L94 Q48 Q58 |
| Date: | 2018–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2018_019&r=reg |
| By: | Dirk Röttgers (OECD); Brilé Anderson (OECD) |
| Abstract: | This report investigates the effects of select climate policies, non-climate policies, as well as political economy factors on the decarbonisation of electricity in OECD countries from 2000 to 2015. Effects are analysed on the three phases of decarbonisation: (1) increasing the share of renewables installed, (2) increasing the use of renewables in generation, and (3) reducing the emissions from electricity. |
| Keywords: | climate change, Decarbonisation, electricity, political economy, regression analysis |
| JEL: | H23 L94 P16 P48 Q42 Q48 Q54 Q55 Q58 |
| Date: | 2018–11–28 |
| URL: | http://d.repec.org/n?u=RePEc:oec:envaaa:139-en&r=reg |
| By: | Arlan Brucal (Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science); Nori TARUI (Department of Economics, University of Hawaii at Manoa and the University of Hawaii Economic Research Organization (UHERO)) |
| Abstract: | Under traditional (cost-of-service) electric utility regulation, regulated utilities may not recover their fixed costs when their sales are lower than expected. Revenue decoupling (RD) is a mechanism that allows price adjustments so that the regulated utility recovers its required revenue. This paper investigates the welfare and distributional impacts of RD. Theoretically, we find that the excess burden of subsidies for distributed generation is larger with RD than without. Contrary to how RD is specified on dockets in many states, electricity prices appear to demonstrate downward rigidity, while statistically significant upward adjustments on average are observed across utilities that experienced decoupling. We also find empirically that RD has generated negative welfare effects in most states even if we consider the social marginal costs of electricity generation given different energy mix across regional markets. |
| Keywords: | utility regulation, decoupling, electricity sector |
| JEL: | D62 L94 Q48 Q58 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201814&r=reg |
| By: | Arlan Brucal (Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science); Nori Tarui (Department of Economics, University of Hawaii at Manoa; University of Hawaii Economic Research Organization (UHERO)) |
| Abstract: | Under traditional (cost-of-service) electric utility regulation, regulated utilities may not recover their fixed costs when their sales are lower than expected. Revenue decoupling (RD) is a mechanism that allows price adjustments so that the regulated utility recovers its required revenue. This paper investigates the welfare and distributional impacts of RD. Theoretically, we find that the excess burden of subsidies for distributed generation is larger with RD than without. Contrary to how RD is specified on dockets in many states, electricity prices appear to demonstrate downward rigidity, while statistically significant upward adjustments on average are observed across utilities that experienced decoupling. We also find empirically that RD has generated negative welfare effects in most states even if we consider the social marginal costs of electricity generation given different energy mix across regional markets. |
| Keywords: | utility regulation; decoupling; electricity sector |
| JEL: | D62 L94 Q48 Q58 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:hae:wpaper:2018-8&r=reg |
| By: | Antoine Dechezleprêtre; Daniel Nachtigall; Frank Venmans |
| Abstract: | This paper investigates the joint impact of the European Union Emissions Trading System (EU ETS), Europe’s main climate change policy, on carbon emissions and economic performance of regulated companies. The impact on emissions is analysed using installation-level carbon emissions from national Polluting Emissions Registries from France, Netherlands, Norway and the United Kingdom complemented with data from the European Pollutant Release and Transfer Register (E-PRTR). The impact on firm performance is analysed using firm-level data for all countries covered by the EU ETS. A matching methodology exploiting installation-level inclusion criteria combined with difference-in-differences is used to estimate the policy’s causal impact on installations’ emissions and on firms’ revenue, assets, profits and employment. We find that the EU ETS has induced carbon emission reductions in the order of -10% between 2005 and 2012, but had no negative impact on the economic performance of regulated firms. These results demonstrate that concerns that the EU ETS would come at a cost in terms of competitiveness have been vastly overplayed. In fact, we even find that the EU ETS led to an increase in regulated firms’ revenues and fixed assets. We explore various explanations for these findings. |
| Keywords: | carbon emissions reductions, competitiveness, EU Emissions Trading System, firm performance |
| JEL: | Q52 Q54 Q58 |
| Date: | 2018–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1515-en&r=reg |
| By: | Amundsen, Eirik S. (University of Bergen, Department of Economics); Gårn Hansen, Lars (University of Copenhagen); Whitta-Jacobsen, Hans Jørgen (University of Copenhagen) |
| Abstract: | In this paper, we study regulation of externalities involving many small-scale polluters, where the damages from emissions depend on the polluters’ locations. Examples include nutrient and pesticide emissions from farms, particulate emissions from vehicles and home heating units, emissions of hazardous chemical compounds from small business etc. With such emission problems, regulatory authorities often apply a combination of firm-level, possibly differentiated standards for ‘cleaner’ technologies, and market-level, undifferentiated dirty input regulations. We establish general principles for how such regulations should be designed and combined. We find that the optimal regulation design crucially depends on the type of cleaner technologies available to polluters. If these are ‘emission capturing’, optimal technology standards encourage the use of cleaner technologies in both high and low damage areas, while if they are ‘input displacing’, optimal technology regulation encourages cleaner technologies in high damage areas, but discourages their use in low damage areas. Regulation should always discourage the use of dirty input and the optimal regulation intensity may be substantial, particularly if the available cleaner technologies are input displacing. |
| Keywords: | Location-specific externalities; Technologies; Regulation; Policy |
| JEL: | D62 H23 Q58 |
| Date: | 2018–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bergec:2018_009&r=reg |
| By: | Florian Perrotton (IFPEN - IFP Energies nouvelles - IFPEN - IFP Energies nouvelles, EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Olivier Massol (IFPEN - IFP Energies nouvelles - IFPEN - IFP Energies nouvelles, IFP School, University of London [London]) |
| Abstract: | This note details a complete microeconomic characterization of the physical relationships between input use and the level of output of a simple point-to-point gas pipeline system and uses it to contribute to the public policy discussions pertaining to the economic regulation of natural gas pipelines. We show that the engineering equations governing the design and operations of that infrastructure can be approximated by a single production equation of the Cobb-Douglas type. We use that result to inform three public policy debates. First, we prove that the long-run cost function of the infrastructure formally verifies the condition for a natural monopoly, thereby justifying the need of regulatory intervention in that industry. Second, we examine the conditions for cost-recovery in the short-run and contribute to the emerging European discussions on the implementation of short-run marginal cost pricing on interconnector pipelines. Lastly, we analyze the performance of rate-of-return regulation in that industry and inform the regulatory policy debates on the selection of an appropriate authorized rate of return. We highlight that, contrary to popular belief, the socially desirable rate of return can be larger than the market price of capital for that industry. |
| Keywords: | Production function,Natural gas pipeline,Regulation |
| Date: | 2018–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01906191&r=reg |
| By: | Richstein, Jörn C.; Neuhoff, Karsten; May, Nils |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esrepo:184675&r=reg |
| By: | Yujiao Xian; Ke Wang; Yi-Ming Wei; Zhimin Huang |
| Abstract: | The nationwide carbon emission permit trading scheme has been launched in China¡¯s power industry sector by the end of 2017. The estimation of abatement costs savings from carbon emission permit trading can provide valuable guidelines and support to environmental regulatory policies on controlling CO2 emissions. By applying a parametric and nonparametric integrating approach and conducting an ex post analysis in two scenarios (i.e., with and without carbon emission permit trading simulation), this study provides a simulative calculation of the opportunity abatement cost savings and the marginal abatement cost savings from carbon emission permit trading in China¡¯s power industry of 30 provinces. The simulation results show that: i) A 13% annually average potential on the opportunity abatement cost savings (i.e., 1024 billion yuan) would be realized if introducing a nationwide emission permit trading system in China¡¯s power industry during 2011-2015. ii) Meanwhile, the marginal abatement cost savings that range from 39 to 47 yuan/ton would be realized through emission permit trading. iii) Provinces of Xinjiang and Henan show the largest absolute opportunity abatement cost savings from trading, while Qinghai province shows the highest percentage increase in opportunity abatement cost savings. iv) Although there is significant difference in the marginal abatement cost among provinces, the marginal abatement cost savings from trading would occur for most China¡¯s provinces. |
| Keywords: | By-production approach; Data Envelopment Analysis; Directional Distance Function; Emission Trading System; Opportunity abatement cost; Marginal abatement cost |
| JEL: | Q54 Q40 |
| Date: | 2018–11–14 |
| URL: | http://d.repec.org/n?u=RePEc:biw:wpaper:121&r=reg |
| By: | Nikos Tsakiris; Panos Hatzipanayotou (Athens University of Economics and Business); Michael S. Michael |
| Abstract: | We develop a model of a small open economy, where pollution per unit of consumption between domestically produced and imported quantities of the same good differs. We show that the first-best policy combination calls for consumption taxes on all polluting goods, and Border Tax Adjustment (BTA) measures, i.e., tariffs or import subsidies. We identify conditions under which well known tariff-tax reform policies for developing economies, such as a consumer-price-neutral piecemeal reform of a trade and a consumption tax, and a consumer-price-neutral reform of all trade and consumption taxes improve welfare. We also evaluate whether a consumer-price-neutral reform of a tariff and a consumption tax is superior to a reform of a tariff alone. |
| Keywords: | Consumption generated Pollution, Optimal Taxation, Border Tax Adjustments, Trade and Consumption Tax Reforms |
| JEL: | F13 F18 H20 H21 |
| Date: | 2018–11–13 |
| URL: | http://d.repec.org/n?u=RePEc:aue:wpaper:1811&r=reg |
| By: | Muhammad Irfan (University of Waikato); Michael P. Cameron (University of Waikato); Gazi Hassan (University of Waikato) |
| Abstract: | Globally, around three billion people depend upon solid fuels such as firewood, dry animal dung, crop residues, or coal, and use traditional stoves for cooking and heating purposes. This solid fuel combustion causes indoor air pollution (IAP) and severely impairs health and the environment, especially in developing countries like Pakistan. A number of alternative household energy strategies can be adopted to mitigate IAP, such as using liquid petroleum gas (LPG), natural gas, biogas, electric stoves, or improved cook stoves (ICS). In this study, we estimate the benefit-cost ratio, net present value, and internal rate of return of these interventions over a ten-year period in Pakistan. Annual costs included both fixed and operating costs, whereas benefits covered health, productivity gains, time savings, and fuel savings. We found that LPG has the highest benefit-cost ratio of 3.68, and ICS had the lowest benefit-cost ratio (0.58). Natural gas, electric stoves, and biogas had benefit-cost ratios of 2.87, 2.22, and 1.39 respectively. To maximize the return on investment in cleaner burning technology, the government of Pakistan should consider encouraging the adoption of LPG, piped natural gas, and electric stoves as a means to reduce IAP. |
| Keywords: | indoor air pollution; interventions; cost-benefit analysis |
| JEL: | O15 Q42 Q47 |
| Date: | 2018–11–12 |
| URL: | http://d.repec.org/n?u=RePEc:wai:econwp:18/14&r=reg |
| By: | Pedzi Makumbe |
| Keywords: | Energy - Electric Power Energy - Energy Conservation & Efficiency Energy - Renewable Energy Energy - Solar Energy |
| Date: | 2017–12 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wboper:29141&r=reg |
| By: | Jay Pil Choi; Taiji Furusawa; Jota Ishikawa |
| Abstract: | This paper analyzes incentives of a multinational enterprise to manipulate an internal transfer price to take advantage of corporate-tax differences across countries under both monopoly and oligopoly. We examine “cost plus” and “comparable uncontrollable price” as two alternative implementations of the so-called arm’s length principle (ALP) to mitigate this problem. Tax-induced foreign direct investment (FDI) may entail inefficient internal production. We show how the mechanisms behind such inefficient FDI differ between alternative implementation schemes of the ALP and explore implications of the ALP for welfare and dual sourcing incentives. We also develop a novel theory of vertical foreclosure as an equilibrium outcome of strategic transfer pricing. |
| Keywords: | foreign direct investment, multinational enterprise, corporate tax, transfer pricing, arm’s length principle, vertical foreclosure |
| JEL: | F12 F23 H26 L12 L13 L51 L52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7303&r=reg |
| By: | Antoine Dechezleprêtre; Tobias Kruse |
| Abstract: | This article reviews the empirical literature combining economic and environmental performance data at the micro-level, i.e. firm- or facility-level. The literature has generally found a positive and statistically significant correlation between economic performance, as measured by stock market returns, and environmental performance, as measured by emissions of pollutants or adoption of international environmental standards. The main reason for this finding seems to be that firms that reduce their material and energy costs experience both better economic performance and lower emissions. There is also evidence that greener firms are able to attract more productive employees and face smaller costs of capital, and that the introduction of green products enhances firms’ profitability. Only a small and recent literature analyses the joint causal impact of environmental regulations on environmental and economic performance. Interestingly, this literature shows that environmental regulations tend to improve environmental performance while not weakening economic performance. However, the evidence so far is limited to a handful of environmental regulations that are not extremely stringent, so the result cannot be easily generalized. More research is needed to assess the joint effects of environmental regulations on environmental and economic performance, to explore the heterogeneity of these effects across sectors, countries and types of policies, and to understand which policy designs allow improving environmental quality while not altering the economic performance of regulated businesses. |
| Keywords: | environmental performance, firm performance, microdata sources |
| JEL: | Q50 Q58 |
| Date: | 2018–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:oec:ecoaaa:1514-en&r=reg |
| By: | O'Neill, E.; Weeks, M. |
| Abstract: | We examine the distributional effects of the introduction of Time-of-Use (TOU) pricing schemes where the price per kWh of electricity usage depends on the time of consumption. These pricing schemes are enabled by smart meters, which can regularly (i.e. half-hourly) record consumption. Using causal trees, and an aggregation of causal tree estimates known as a causal forest (Athey & Imbens 2016, Wager & Athey 2017), we consider the association between the effect of TOU pricing schemes on household electricity demand and a range of variables that are observable before the introduction of the new pricing schemes. Causal trees provide an interpretable description of heterogeneity, while causal forests can be used to obtain individual-specific estimates of treatment effects. Given that policy makers are often interested in the factors underlying a given prediction, it is desirable to gain some insight to which variables in this large set are most often selected. A key challenge follows from that fact that partitions generated by tree-based methods are sensitive to subsampling, while the use of ensemble methods such as causal forests produce more stable, but less interpretable estimates. To address this problem we utilise variable importance measures to consider which variables are chosen most often by the causal forest algorithm. Given that a number of standard variable importance measures can be biased towards continuous variables, we address this issue by including permutation-based tests for our variable importance results. |
| Keywords: | Machine learning, TOU tari s, Smart metering, Household electricity demand |
| JEL: | Q41 |
| Date: | 2018–10–22 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1865&r=reg |
| By: | He, X.; Reiner, D. |
| Abstract: | External information (e.g., monetary and opportunity costs, retailer messaging), internal information (e.g., consumer knowledge, information processing), and the interaction between different forms of information can affect consumer engagement in markets. We employ an analytical framework which embraces both economic and psychological motives behind consumer behavior to investigate the motives and obstacles associated with household behavior in energy markets, using data from over 18,000 randomly selected responses drawn from three annual surveys of British households commissioned by the UK energy regulator. Three forms of household engagement – switching to a new electricity and/or gas supplier, changing electricity or/and gas tariffs, and changing payment methods of energy bills – are explored using a multiple-discrete choice framework. We find that internal information pathways have robust and strong effects on switching suppliers and tariffs. Concretely, a lack of belief in tariff differences discourages participation in energy markets. By contrast, professed knowledge of household energy spending and familiarity with energy tariffs drives consumer engagement. External information – supplier messages and Internet information may enhance each other in promoting market participation, conditional on message source and participation form. We also find that engagement by incumbent retailers (such as through consumer messages) can be effective in discouraging households from switching suppliers. |
| Keywords: | Consumer switching; services market participation; household engagement; multivariate probit; UK retail gas and electricity markets; information and knowledge effects |
| JEL: | C25 D21 Q49 R29 |
| Date: | 2018–11–07 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camdae:1867&r=reg |
| By: | Maria Börjesson |
| Abstract: | This paper summarises the state of research on the long-term effects of congestion charging in Stockholm and Gothenberg. Sweden’s two largest cities introduced time-of-day dependent, cordon-based congestion charging systems in 2006 and 2013. Public support for congestion charging initially increased following the introduction, but then slightly declined after a revision of the systems. While travel demand in Stockholm has become more price sensitive over time, the reverse happened in Gothenburg. The study examines the reasons behind these findings and discusses policy implications. |
| Date: | 2018–10–12 |
| URL: | http://d.repec.org/n?u=RePEc:oec:itfaab:2018/14-en&r=reg |
| By: | Andres Gonzalez Lira (Research Assistant for Reed Walker, UC Berkeley); Ahmed Mushfiq Mobarak (Professor, Department of Economics, School of Management, Yale University) |
| Abstract: | Attempts to curb illegal activity by enforcing regulations gets complicated when agents react to the new regulatory regime in unanticipated ways to circumvent enforcement. We present a research strategy that uncovers such reactions, and permits program evaluation net of such adaptive behaviors. Our interventions were designed to reduce over-fishing of the critically endangered Pacific hake by either (a) monitoring and penalizing vendors that sell illegal fish or (b) discouraging consumers from purchasing using an information campaign. Vendors attempt to circumvent the ban through hidden sales and other means, which we track using mystery shoppers. Instituting random monitoring visits are much more effective in reducing true hake availability by limiting such cheating, compared to visits that occur on a predictable schedule. Monitoring at higher frequency (designed to limit temporal displacement of illegal sales) backfires, because targeted agents learn faster, and cheat more effectively. Sophisticaed policy design is therefore crucial for determining the sustained, longer-term effects of enforcement. Data collected from fishermen, vendors, and consumers allow us to document the upstream, downstream, spillover, and equilibrium effects of enforcement on the entire supply chain. The consumer information campaign generates two-thirds of the gains compared to random monitoring, but is simpler for the government to implement and almost as cost-effective. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:hku:wpaper:201857&r=reg |
| By: | Maral Kichian |
| Abstract: | In 2008, the government of the province of British Columbia broke new ground in North America by introducing a revenue-neutral carbon tax on fossil fuels. The initial rate was set at $10/ton of CO2 which was then increased annually by $5 increments to reach $30/ton in 2012. We focus on monthly diesel use which is mostly related to commercial activities. Our objective is to measure user reaction to the new tax. Exploiting the sample time series properties, we study the long run reaction via a cointegration equation, linking diesel use, its total price, and income, and the short run reaction using an error correction model (ECM). Carbon tax saliency is interpreted as a short run phenomenon that shows up in the dynamic adjustment of the ECM. We find that the long run total price elasticity estimate of diesel demand is -0.52 and that the short run tax saliency effect is statistically significant. However, the total reaction is small relative to CanadaÕs commitment to decrease GHG emissions by 30% in 2030 relative to 2005 levels. |
| Keywords: | diesel demand, carbon tax, tax saliency |
| JEL: | Q41 Q58 H23 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:lvl:creacr:2018-01&r=reg |