nep-reg New Economics Papers
on Regulation
Issue of 2018‒12‒24
23 papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Decoupling the EU ETS from subsidized renewables and other demand side effects Lessons from the impact of the EU ETS on CO2 emissions in the German electricity sector By Sebastian Schaefer
  2. Path dependencies versus efficiencies in regulation: Evidence from "old" and "new" broadband markets in the EU By Briglauer, Wolfgang; Camarda, Enrico Maria; Vogelsang, Ingo
  3. Carbon Prices are Redundant in the 2030 EU Climate and Energy Policy Package By Finn Roar Aune; Rolf Golombek
  4. Economic Assessment of Using Electric Vehicles and Batteries as Domestic Storage Units in the United Kingdom By Donato A. Melchiorre.; Sinan Küfeoglu
  5. Decompositions and Policy Consequences of an Extraordinary Decline in Air Pollution from Electricity Generation By Stephen P. Holland; Erin T. Mansur; Nicholas Muller; Andrew J. Yates
  6. Policy Evolution under the Clean Air Act By Richard Schmalensee; Robert N. Stavins
  7. Strategic behaviour in a capacity market? The new Irish electricity market design By Teirilä, J.; Ritz, R.
  8. Pass-through, profits and the political economy of regulation By Grey, F.; Ritz, R.
  9. Unbundling, regulation and pricing: Evidence from electricity distribution By Heim, Sven; Krieger, Bastian; Liebensteiner, Mario
  10. Regulation of Location-Specific Externalities By Eirik S. Amundsen; Lars Gårn Hansen; Hans Jørgen Whitta-Jacobsen
  11. Restructuring the Chinese Electricity Supply Sector - How industrial electricity prices are determined in a liberalized power market: lessons from Great Britain By Pollitt, M.; Dale, L.
  12. Excess Capacity and Effectiveness of Policy Interventions: Evidence from the Cement Industry By Tetsuji Okazaki; Ken Onishi; Naoki Wakamori
  13. Parallel tracks towards a global treaty on carbon pricing By Jeroen C.J.M. van den Bergh; Arild Angelsen; Andrea Baranzini; W.J. Wouter Botzen; Stefano Carattini; Stefan Drews; Tessa Dunlop; Eric Galbraith; Elisabeth Gsottbauer; Richard B. Howarth; Emilio Padilla; Jordi Roca; Robert Schmidt
  14. Congestion Management: From Physics to Regulatory Instruments By Hirth, Lion; Glismann, Samuel
  15. Pricing in Day-Ahead Electricity Markets with Near-Optimal Unit Commitment By Brent Eldridge; Richard O'Neill; Benjamin Hobbs
  16. Mobile investment and traffic per capita tend to increase with license duration By Jeanjean, Francois; Lebourges, Marc; Liang, Julienne
  17. Energy performance certificates and investments in building energy efficiency: a theoretical analysis By Pierre Fleckinger; Matthieu Glachant; Paul-Hervé Tamokoué Kamga
  18. Measuring Long-Run Price Elasticities in Urban Travel Demand By Donna, Javier D.
  19. From forward to spot prices: producers, retailers and loss averse consumers in electricity markets By Valeria Di Cosmo; Elisa Trujillo-Baute
  20. How does information disclosure affect liquidity?Evidence from an Emerging Market By Ignacio Arango; Diego A. Agudelo
  21. The Billion Dollar Question: How Much Will it Cost to Decarbonise Cities’ Transport Systems? By Nicolas Wagner
  22. Competition policy questions in mobile network sharing By Pápai, Zoltán; Csorba, Gergely; Nagy, Péter; McLean, Aliz
  23. The Economics of Regulating Ride-Hailing and Dockless Bike Share By Rex Deighton-Smith

  1. By: Sebastian Schaefer (University of Siegen)
    Abstract: This paper analyzes the impact of the EU ETS on CO2 reduction in the German electricity sector. We find an ETS-induced emission abatement which is not exceeding 6 % of total emissions with a maximum already in 2010. Thereafter the ETS has not induced additional reductions. This outcome is sub-optimal. It corresponds to the recent debate about sub-optimal performance of the EU ETS caused by excessive allowances. Following up on this we develop a unilateral flexible cap to eliminate demand side effects which lead to excessive allowances. The unilateral flexible cap is based on emission intensities. Using the works of Newell and Pizer (2008); Sue Wing et al. (2009) we prove in a first step that an intensity-based emission cap is advantageous in the German electricity sector when compared to an absolute cap. An ex-post analysis shows that the amount of excessive allowances resulting from the economic crisis during the second trading period could have been significantly lowered with a unilateral flexible cap. This approach also decouples the EU ETS from a simultaneous promotion of renewable energy.
    Keywords: Decoupling Overlapping Regulations, Promotion of Renewable Energy, Emissions Trading, Intensity Standard
    JEL: Q41 Q42 Q48 Q54
    Date: 2018
  2. By: Briglauer, Wolfgang; Camarda, Enrico Maria; Vogelsang, Ingo
    Abstract: This paper examines the determinants of sector-specific regulation imposed on broadband markets related both to efficiency objectives of regulators and to those of narrowly defined interest groups. We test hypotheses derived from the normative and positive theoretical literature employing recent panel data on 27 European Union member states taking into account endogeneity of the underlying regulation and market structure variables. Our empirical specification employs three different estimators based on instrumental variables in order to identify causal effects. We find evidence supporting both regulators pursuing normative objectives and inefficiencies related to regulatory path dependence, bureaucracy goals and an inadequate consideration of competition from mobile broadband networks. Our results call for adjustments in the institutional design of the decision making process under the current European Union regulatory framework.
    Keywords: broadband markets,"old" and "new" networks,EU regulatory framework,normative theory,positive theory,path dependence,bureaucracy,EU panel data
    Date: 2018
  3. By: Finn Roar Aune; Rolf Golombek
    Abstract: In June 2018, an agreement between key EU institutions – the Commission, the European Parliament, and the European Council – was reached after a long-lasting discourse over the 2030 EU climate and energy policy package. This paper offers a comprehensive assessment of the EU package, with its three main targets: lower greenhouse gas emissions, higher renewable share in final energy consumption, and improved energy efficiency. We find that the renewable and energy-efficiency targets have been set so high that the derived emissions reduction exceeds the EU climate target. Hence, carbon prices are redundant in reaching the EU climate goal. This policy, however, is not cost efficient.
    Keywords: climate policy, renewables, energy efficiency, nuclear phase out, energy modeling
    JEL: Q28 Q41 Q48 Q54
    Date: 2018
  4. By: Donato A. Melchiorre.; Sinan Küfeoglu
    Abstract: Increasing residential renewable energy generation and the consumers’ demand for reducing their electricity bills leads to new opportunities to use electric vehicles (EVs) and batteries as domestic storage units. This paper assesses the economic feasibility of Vehicle-to-Home (V2H) and domestic battery systems in the United Kingdom (UK). To do the analysis, a UK average EV and domestic battery have been established; called UKEV and UKBat respectively. The UKEV characteristics were determined by taking a weighted average from the five highest selling EVs in the UK. An arithmetic mean was used for the individual UKBat features based on seven models currently available on the UK market. The UKEV and UKBat were compared under four scenarios. These are Ofgem’s two domestic electricity profile classes (PC1, PC2) and two existing time-of-use tariffs; one with two and the other with three rates during a day. Maximum annual saving for the consumer was estimated to be around 35% and 57% per annual electricity bill for the EV and battery, respectively. On average, for both UKEV and UKBat, the three-rate tariff yielded 30% more savings than the two-rate tariff. Battery degradation cost was the major parameter affecting the economic feasibility of V2H and domestic batteries, but these costs are expected to continue to fall. Suitable time-of-use tariff design is the key to maximising consumers’ savings in using these units.
    Keywords: electric vehicles; battery; vehicle-to-home systems; tariffs
    JEL: L94
    Date: 2018–10–16
  5. By: Stephen P. Holland; Erin T. Mansur; Nicholas Muller; Andrew J. Yates
    Abstract: We determine the change in air pollution damages from U.S. power plant emissions over 2010 to 2017. Annual damages fell from $245 billion to $133 billion over this period, with most of the decline occurring in the East. Decomposition shows that changes in emissions rates reduced damages by $63 billion, changes in generation shares reduced damages by $60 billion, and a reduction in fossil generation reduced damages by $25 billion. However, changes in damage valuations per ton of emissions increased damages by $35 billion. We estimate that marginal damages declined in the East from about 9¢ per kWh in 2010 to 6¢ in 2017. This decrease is slower than the decrease in total damages. Despite little or no change in total damages in the West and Texas, marginal damages increased. The environmental benefit of electric vehicles increased so that they are now cleaner than gasoline vehicles on average, though substantial heterogeneity remains. The environmental benefit of solar panels decreased in the East but increased elsewhere.
    JEL: D62 H23 Q53 Q54
    Date: 2018–12
  6. By: Richard Schmalensee; Robert N. Stavins
    Abstract: The U.S. Clean Air Act, passed in 1970 with strong bipartisan support, was the first environmental law to give the Federal government a serious regulatory role, established the architecture of the U.S. air pollution control system, and became a model for subsequent environmental laws in the United States and globally. We outline the Act’s key provisions, as well as the main changes Congress has made to it over time. We assess the evolution of air pollution control policy under the Clean Air Act, with particular attention to the types of policy instruments used. We provide a generic assessment of the major types of policy instruments, and we trace and assess the historical evolution of EPA’s policy instrument use, with particular focus on the increased use of market-based policy instruments, beginning in the 1970s and culminating in the 1990s. Over the past fifty years, air pollution regulation has gradually become much more complex, and over the past twenty years, policy debates have become increasingly partisan and polarized, to the point that it has become impossible to amend the Act or pass other legislation to address the new threat of climate change.
    JEL: Q28 Q40 Q48 Q54 Q58
    Date: 2018–11
  7. By: Teirilä, J.; Ritz, R.
    Abstract: The transition to a low-carbon power system requires growing the share of generation from (intermittent) renewables while ensuring security of supply. Policymakers and economists increasingly see a capacity mechanism as a way to deal with this challenge. Yet this raises new concerns about the exercise of market power by large players via the capacity auction. We present a new modelling approach that captures such strategic behaviour together with a set of ex ante empirical estimates for the new Irish electricity market design (I-SEM) – in which a single firm controls 44% of generation capacity (excluding wind). We find significant costs of strategic behaviour, even with new entry: In our baseline scenarios, procurement costs in the capacity auction are around 150-400 million EUR (or 40-100%) above the competitive least-cost solution. From a policy perspective, we also examine how market power can be measured and mitigated through auction design.
    Keywords: capacity market, strategic behaviour, competitive benchmark analysis, restructured electricity market, auction design
    JEL: D44 H57 L13 L94
    Date: 2018–10–30
  8. By: Grey, F.; Ritz, R.
    Abstract: Government regulation, such as the pricing of externalities, often raises the unit costs of regulated firms, and its impact on their profits is important to its political economy. We introduce a reduced-form model (“GLM”) that nests existing models of imperfect competition under weaker assumptions. We show how a firm's cost passthrough is a sufficient statistic for the profit impact of regulation. We apply the GLM to carbon pricing for US airlines. We find large inter-firm heterogeneity in pass-through, even for a uniform cost shock. The GLM allows us to sidestep estimation of a consumer demand system, firm markups and conduct parameters. We derive the second-best emissions tax including lobbying a government “for sale”.
    Keywords: Cost pass-through, regulation, carbon pricing, airlines, political economy
    JEL: D43 H23 L51 L92 Q54
    Date: 2018–10–17
  9. By: Heim, Sven; Krieger, Bastian; Liebensteiner, Mario
    Abstract: Unbundling of vertically integrated utilities has become an integral element in the regulation of network industries and has been implemented in many jurisdictions. The idea of separating the network, as the natural monopoly, from downstream retailing, which may be exposed to competition, is still subject to contentious debate. This is because there is much empirical evidence that unbundling eliminates economies of vertical integration while empirical evidence on price reducing effects is still lacking. In this paper we study the effect of legal unbundling on grid charges in the German electricity distribution industry. Using panel data on German distribution system operators (DSOs) we exploit the variation in the timing of the implementation of legal unbundling and the fact that not all DSOs had to implement unbundling measures. We are also able to identify heterogeneous effects of legal unbundling for different types of price regulation, because we observe a switch in the price regulation regime from rate-of-return regulation to incentive regulation during our observation period. Our findings suggest that legal unbundling of the network stage significantly decreases grid charges in the range of 5% to 9%, depending on the type of price regulation in place.
    Keywords: Vertical Integration,Electricity Distribution,Unbundling,Regulation
    JEL: D22 L11 L22 L51 L94 Q48
    Date: 2018
  10. By: Eirik S. Amundsen; Lars Gårn Hansen; Hans Jørgen Whitta-Jacobsen
    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.
    JEL: H23 Q58 D62
    Date: 2018
  11. By: Pollitt, M.; Dale, L.
    Abstract: In this paper, we begin by discussing the components of the price of industrial electricity in Great Britain, as an example of a fully reformed electricity market, where the market is roughly comparable in size to a reasonably large Chinese province. We go on to discuss the key actors in the liberalized electricity system in Great Britain, before unpacking each of the components of the price. We discuss the market determined elements first, then go on to introduce and discuss the regulated elements of the price before finishing with the central government determined price components. Our discussion covers the determination of the wholesale price, the retail margin, transmission charges, system balancing charges, distribution charges and environmental levies and taxes. In each of these cases we discuss the process by which they are determined (led by the market, the regulator, the central government or more than one) and the specific lessons for China. We conclude by emphasizing some of the high-level lessons on electricity price determination for China.
    Keywords: Chinese power market reform; industrial electricity price; electricity liberalization
    JEL: L94
    Date: 2018–11–28
  12. By: Tetsuji Okazaki; Ken Onishi; Naoki Wakamori
    Abstract: Strategic interaction among firms may hinder the reduction of excess capacity in a declining industry. Policy interventions that attempt to reduce excess capacity may increase efficiency by accelerating the capital adjustment but may decrease efficiency by increasing the market power of firms and/or by distorting firms' divestment decisions. We study capacity coordination policies-forcing firms to reduce their capacity simultaneously-applied to the Japanese cement industry. Estimation results suggest that these interventions (i) did not increase market power because reduction in capacity resulted in higher utilization of the remaining plants, and (ii) did not distort firms' scrappage decisions.
    Date: 2018–12
  13. By: Jeroen C.J.M. van den Bergh (Universitat Autònoma de Barcelona, ICREA & VU University Amsterdam); Arild Angelsen (Norwegian University of Life Sciences); Andrea Baranzini (University of Applied Sciences Western Switzerland); W.J. Wouter Botzen (VU University Amsterdam & Utrecht University); Stefano Carattini (Yale School of Forestry & Environmental Studies, Grantham Research Institute & London School of Economics and Political Science); Stefan Drews (Universitat Autònoma de Barcelona); Tessa Dunlop (Universitat Autònoma de Barcelona); Eric Galbraith (Universitat Autònoma de Barcelona & ICREA); Elisabeth Gsottbauer (University of Innsbruck); Richard B. Howarth (Dartmouth College); Emilio Padilla (Universitat Autònoma de Barcelona); Jordi Roca (Universitat de Barcelona); Robert Schmidt (University of Kaiserslautern)
    Abstract: We argue that a global carbon price is the only way to effectively tackle free riding in international climate policy, required to substantially reduce greenhouse gas emissions. We briefly review the main reasons behind the essential role of carbon pricing, address common misunderstandings and scepticism, and identify key complementary policy instruments. Negotiating global carbon pricing is argued to be much easier than negotiating binding country-level targets, especially if it includes equitable revenue recycling. Moreover, a global carbon price can be more readily adapted to new data and insights of climate science. We propose a political strategy towards a global carbon price that consists of two tracks. The first entails assembly of a carbon-pricing club, a specific case of a climate club, to gradually move towards a full participatory agreement on carbon pricing. The second track involves putting time and energy into re-focusing UNFCCC negotiations on a carbon-pricing agreement. The two tracks reinforce one another, increasing the likelihood of a successful outcome.
    Keywords: Carbon Tax, Carbon Market, Cap-and-Trade, Tradable Permits, Equity, Climate Agreement, Climate Club
    JEL: Q54 Q58 Q48
    Date: 2018
  14. By: Hirth, Lion; Glismann, Samuel
    Abstract: In recent years, power flows in many European transmission and distribution networks have increased, making the management of network congestion a much-debated – and increasing politicized – topic. This paper is an introduction to and a review of congestion management in European electricity grids. We review the physical measures available to avoid congestion, using a newly introduced analytical framework. Also, we provide a com-prehensive review of regulatory instruments used and proposed to incentivize those measures. Finally, we provide a description of the implementation of three prominent instruments, including so-called redispatch.
    Keywords: Redispatch,Congestion Management
    Date: 2018
  15. By: Brent Eldridge (Federal Energy Regulatory Commission, Washington DC); Richard O'Neill (Federal Energy Regulatory Commission, Washington DC); Benjamin Hobbs (Environmental Health and Engineering Department, Johns Hopkins University)
    Date: 2018–11
  16. By: Jeanjean, Francois; Lebourges, Marc; Liang, Julienne
    Abstract: Using source WCIS (World Cellular Information Service) for the tangible investments of mobile operators and mobile spectrum licenses, we are able to build a database matching the level of investment per capita with average license duration for 14 countries (representing more than 75% of the number of mobile subscribers of the EEA area) during 15 years. The statistical analysis of the data base proves a strong positive correlation between license average duration and tangible investment per capita. More precisely, we observe an increase of 5.36 e in average investment per capita per year for each additional year of license duration. This feature also holds at operator level. Using Data traffic from Telecom Market Matrix at country level, we also observe that each additional year of license duration corresponds to about 10% additional yearly growth of data traffic.
    Date: 2018
  17. By: Pierre Fleckinger (MINES ParisTech and PSL University & Paris School of Economics); Matthieu Glachant (MINES ParisTech and PSL University); Paul-Hervé Tamokoué Kamga (MINES ParisTech and PSL University)
    Abstract: In the European Union, Energy Performance Certificates (EPCs) provide potential buyers or tenants with information on a property's energy performance. By mitigating informational asymmetries on real estate markets, the conventional wisdom is that they will reduce energy use, increase energy-efficiency investments, and improve social welfare. We develop a dynamic model that partly contradicts these predictions. Although EPCs always improve social welfare, their impact on energy use and investments is ambiguous. This implies that, in a second-best world where energy externalities are under-priced and/or homeowners have behavioral biases hindering investments (myopia), EPCs can damage social welfare. This calls for using mandatory energy labeling in contexts where additional instruments efficiently mitigate the other imperfections.
    Keywords: Energy Labeling, Energy Efficiency, Buildings
    JEL: Q48 R31
    Date: 2018
  18. By: Donna, Javier D.
    Abstract: This paper develops a structural model of urban travel to estimate long-run price elasticities. A dynamic discrete choice demand model with switching costs is estimated, using a panel dataset with public market-level data on automobile and public transit use for Chicago. The estimated model shows that long-run own- (automobile) and cross- (transit) price elasticities are more elastic than short-run elasticities, and that elasticity estimates from static and myopic models are downward biased. The estimated model is used to evaluate the response to a gasoline tax. Static and myopic models mismeasure long-run substitution patterns, and could lead to incorrect policy decisions.
    Keywords: Long-run price elasticities, Dynamic demand travel, Hysteresis
    JEL: L71 L91 L98
    Date: 2018–11–05
  19. By: Valeria Di Cosmo (Economic and Social Research Institute, Dublin & Fondazione Enrico Mattei, Milan); Elisa Trujillo-Baute (Chair of Energy Sustainability, Universitat de Barcelona & Institut d’Economia de Barcelona (IEB))
    Abstract: The benefits of smoothing demand peaks in the electricity market has been widely recognised. European countries such as Spain and some of the Scandinavian countries have recently given to the consumers the possibility to face the spot prices instead of having a fixed tariffs determined by retailers. This paper develops a theoretical model to study the relations between risk averse consumers, retailers and producers, both in the spot and in the forward markets when consumers are able to choose between fixed tariffs and the wholesale prices. The model is calibrated on a real market case - Spain - where since 2014 spot tariffs were introduced beside the flat tariffs for household consumers. Finally, simulations of agents behavior and markets performance, depending on consumers risk aversion and the number of producers, are used to analyse the implications from the model. Our results show that the quantities the retailers and the producers trade in the forward market are positively related with the loss aversion of consumers. The quantities bought by the retailers in the forward market are negatively related with the skewness of the spot prices. On the contrary, quantity sold forward by producers are positively related with the skewness of the spot prices (high probability of getting high prices increase the forward sale) and with the total market demand. In the spot market, the degree of loss aversion of consumers determine the quantity the retailers buy in the spot market but does not have a direct effect on the spot prices.
    Keywords: Electricity Spot Market, Electricity Forward Market, Risk Aversion
    JEL: D40 L11 Q41
    Date: 2018
  20. By: Ignacio Arango; Diego A. Agudelo
    Date: 2017–12–30
  21. By: Nicolas Wagner (International Transport Forum)
    Abstract: This paper puts numbers on the investment needs for urban transport infrastructure under different policy scenarios. The cities of the future will be shaped by today’s decisions about physical transport assets, and the urgent need to halt climate change makes it more important than ever to get it right. The analysis shows that a low-carbon transport system is not necessarily more expensive than today’s mobility system, and can even be more cost-efficient.
    Date: 2018–11–09
  22. By: Pápai, Zoltán; Csorba, Gergely; Nagy, Péter; McLean, Aliz
    Abstract: Network sharing agreements have become increasingly widespread in mobile telecommunications markets. They carry undeniable advantages to operators and consumers alike, but also the potential for consumer harm. Not all NSAs are created equal: the assessment of the balance of harm and benefits to customers due to an NSA is a complex endeavour. In this paper, we present a framework for the competitive assessment of NSAs, detailing the possible concerns that may arise, the main factors that influence their seriousness, ways to mitigate the concerns and the principles of assessing efficiency benefits.
    Keywords: mobile markets,network sharing,competition,competition assessment
    Date: 2018
  23. By: Rex Deighton-Smith
    Abstract: This paper reviews the economic case for regulating ride-hailing and dockless bikeshare. Ride-hailing has disrupted heavily regulated taxi markets and is calling much of the rationale for taxi regulation into question. It argues for light-handed regulation to enable fair, nondistorting competition across the sector. A similar approach to bikeshare is needed, though the context differs greatly. These services are creating new mobility options, while their business models are evolving rapidly. Regulators should adopt a cautious approach which minimises the risk of undermining their potential.
    Date: 2018–11–26

This nep-reg issue is ©2018 by Natalia Fabra. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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