nep-reg New Economics Papers
on Regulation
Issue of 2019‒01‒21
sixteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Power Markets in Transition: Decarbonization, Energy Efficiency, and Short-Term Demand Response By Mathias Mier; Christoph Weissbart
  2. Effects of attribute-based regulation on technology adoption: The case of feed-in tariffs for solar photovoltaic By Germeshausen, Robert
  3. Pigou Pushes Preferences: Decarbonisation and Endogenous Values By Linus Mattauch; Cameron Hepburn; Nicholas Stern
  4. Eyes on the Price: Which Power Generation Technologies Set the Market Price? Price Setting in European Electricity Markets: An Application to the Proposed Dutch Carbon Price Floor By Blume-Werry, Eike; Faber, Thomas; Hirth, Lion; Huber, Claus; Everts, Martin
  5. Learning by Viewing? Social Learning, Regulatory Disclosure, and Firm Productivity in Shale Gas By T. Robert Fetter; Andrew L. Steck; Christopher Timmins; Douglas Wrenn
  6. Incomplete Contracts, Shared Ownership, and Investment Incentives By Schmitz, Patrick W.
  7. Competing Land Uses and Fossil Fuel, Optimal Energy Conversion Rates During the Transition Toward a Green Economy Under a Pollution Stock Constraint By Amigues, Jean-Pierre; Moreaux, Michel
  8. Technological Spillover Effects of State Renewable Energy Policy: Evidence from Patent Counts By Wancong Fu; Chong Li; Jan Ondrich; David Popp
  9. From Forward to Spot Prices: Producers, Retailers and Loss Averse Consumers in Electricity Markets By Di Cosmo, Valeria; Trujillo-Baute, Elisa
  11. The deterrence effect of linear versus convex penalties in environmental policy: laboratory evidence By Caffera, Marcelo; Chávez, Carlos; Ardente, Analía
  12. A Multidimensional Approach to Measuring Fuel Poverty By Dorothée Charlier; Bérangère Legendre
  13. The Rebound Effect and its representation in Climate and Energy models By Colmenares, Gloria; Löschel, Andreas; Madlener, Reinhard
  14. The impact of broadband and other infrastructure on the location of new business establishments. By McCoy, Daire; Lyons, Sean; Morgenroth, Edgar; Palcic, Donal; Allen, Leonie
  15. Mobile Usage baskets to measure ICT Sector Performance By Esselaar, Stephen; Stork, Christoph
  16. Economic implications of phantom traffic jams: Evidence from traffic experiments By Kathrin Goldmann; Gernot Sieg

  1. By: Mathias Mier; Christoph Weissbart
    Abstract: Energy efficiency and short-term demand response are key issues in the decarbonization of power markets. However, their interaction and combined impact on market prices as well as on the supply side, is yet to be understood. We develop a framework to implement investments in energy efficiency and short-term demand response in detailed partial equilibrium power market models. We quantify our results using the EU-REGEN model for the European power market and find that energy efficiency contributes, under a 80% emission reduction target, only 11% of carbon emission reductions. Intermittent renewable energies such as wind and solar power account for the major share of 53%. However, both energy efficiency and short-term demand response have their merits in reducing marginal abatement costs and additionally exhibit an subadditive effect, at least under a 80% climate policy.
    Keywords: Energy efficiency, demand response, renewable energy, dispatchable technologies, energy modeling, optimal dispatch, investment planning
    JEL: C61 L94 Q41 Q51
    Date: 2019
  2. By: Germeshausen, Robert
    Abstract: Feed-in tariffs are a widespread policy instrument to support the diffusion of renewable energy technologies. I investigate the impact of the size-based differentiation of these tariffs on the adoption of residential scale solar photovoltaic (PV) installations in Germany. Exploiting a policy change of administrative size classes for PV systems, I find that (i) the reduction in marginal feed-in tariffs decreases new capacity additions by around 29 per cent, and (ii) differentiated tariffs provide incentives for excess bunching at the ceiling of the smaller size class. Excess bunching decreases newly installed PV capacity additionally by around 14 per cent. Back-of-the-envelope calculations suggest that this may lead to annual efficiency losses that increase over time from about 0.2 to 4.4 per cent of the annual support cost for new small PV installations.
    Keywords: solar photovoltaic,feed-in tariffs,diffusion of renewable energy technologies,attribute-based regulation,bunching analysis
    JEL: O38 Q42 Q48
    Date: 2018
  3. By: Linus Mattauch; Cameron Hepburn; Nicholas Stern
    Abstract: Avoiding unmanageable climate change implies that global greenhouse gas emissions must be reduced rapidly. A significant body of literature shows that policy instruments such as carbon prices can make an important contribution to this goal. In contrast, changes in preferences or values are rarely considered, even though other major socioeconomic transitions - such as those from reducing smoking and drink-driving - have succeeded partly because values have changed. This article examines the impact of climate policy-induced changes in consumers’ values. We demonstrate that when changes in values through policies occur, and are not accounted for, such policies are inefficient. First, target-achieving carbon taxes must be adjusted if they crowd-in or -out social preferences. Second, when the urban built environment changes mobility preferences, low-carbon infrastructure investments are more valuable. Third, policy-induced changes in preferences for active travel and low-meat diets could increase the net benefits of the transition to zero emissions, in turn affecting optimal policy.
    Keywords: climate change, carbon pricing, endogenous preferences, crowding-in, transport infrastructure, health co-benefit
    JEL: A12 D91 H23 Q54 Q58
    Date: 2018
  4. By: Blume-Werry, Eike; Faber, Thomas; Hirth, Lion; Huber, Claus; Everts, Martin
    Abstract: Upon discussion of price setting on electricity wholesale markets, many refer to the so-called merit order model. Conventional wisdom holds that during most hours of the year, coal- or natural gas-fired power plants set the price on European markets. In this context, this paper analyses price setting on European power markets. We use a fundamental electricity market model of interconnected bidding zones to determine hourly price-setting technologies for the year 2020. We find a price-setting pattern that is more complex and nuanced than the conventional wisdom suggests: across all researched countries, coal- and natural gas-fired power plants set the price for only 40 per cent of all hours. Other power generation technologies such as wind, biomass, hydro and nuclear power plants as well as lignite-fired plants set the price during the rest of the year. On some markets, the price setting is characterised by a high level of interconnectivity and thus foreign influence – as illustrated by the example of the Netherlands. During some 75 per cent of hours, foreign power plants set the price on the Dutch market, whilst price setting in other more isolated markets is barely affected by foreign markets. Hence, applying the price setting analysis to the proposed Dutch carbon price floor, we show that different carbon prices have little effect on the technological structure of the price-setting units. In this respect, the impacts of the unilateral initiative are limited. There are, however, considerable changes to be observed in wholesale power prices, import/export balances as well as production volumes and subsequent CO2 outputs of lignite-, coal- and gas-fired power plants.
    Keywords: Resource /Energy Economics and Policy
    Date: 2019–01–14
  5. By: T. Robert Fetter; Andrew L. Steck; Christopher Timmins; Douglas Wrenn
    Abstract: In many industries firms can learn about new technologies from other adopters; mandatory disclosure regulations represent an understudied channel for this type of social learning. We study an environmentally-focused law in the shale gas industry to examine firms’ claims that disclosure requirements expose valuable trade secrets. Our research design takes advantage of a unique regulatory history that allows us to see complete information on chemical inputs prior to disclosure, along with the timing of information availability for thousands of wells after disclosure takes effect. We find that firms’ chemical choices following disclosure converge in a manner consistent with inter-firm imitation and that this leads to more productive wells for firms that carefully choose whom to copy — but also a decline in innovation among the most productive firms, whose innovations are those most often copied by other firms. Our results suggest there is a long-run welfare trade-off between the potential benefits of information diffusion and transparency, and the potential costs of reduced innovation.
    JEL: L24 L51 L71 O3 Q53 Q55 Q58
    Date: 2018–12
  6. By: Schmitz, Patrick W.
    Abstract: Consider a partnership consisting of two symmetrically informed parties who may each own a share of an asset. It is ex post efficient that tomorrow the party with the larger valuation gets the asset. Yet, today the parties can make investments to enhance the asset's productivity. Contracts are incomplete, so today only the ownership structure can be specified, which may be renegotiated tomorrow. It turns out that shared ownership is often optimal. If the investments are embodied in the physical asset, it may be optimal that party B has a larger ownership share even when party A has a larger valuation and a better investment technology. When shared ownership is taken into account, joint ownership in the sense of bilateral veto power cannot be optimal, regardless of whether the investments are in human capital or in physical capital.
    Keywords: property rights, incomplete contracts, investment incentives, partnership dissolution, shared ownership
    JEL: C78 D23 D86 L24 O32
    Date: 2017
  7. By: Amigues, Jean-Pierre; Moreaux, Michel
    Abstract: We study the transition to a carbon-free economy in a model with a polluting non-renewable resource and a clean renewable resource. Transforming primary energy into ready-to-use energy services is costly and more efficient energy transformation rates are more costly to achieve. Renewable energy competes with food production for land and the food productivity of land can be improved at some cost. To avoid catastrophic climate damages, the pollution stock is mandated to stay below a given cap. When the economy is not constrained by the cap, the efficiency of energy transformation increases steadily until the transition toward the ultimate green economy; when renewable energy is exploited, its land use rises at the expense of food production; food productivity increases together with the land rent but food production drops; the food and energy prices increase and renewables substitute for non-renewable energy. During the constrained phase, the economy follows a constant path of prices, quantities, efficiency rates, food productivity and land rent, a phenomenon we call the ’ceiling efficiency paradox'.
    JEL: Q00 Q32 Q43 Q54
    Date: 2018–12
  8. By: Wancong Fu; Chong Li; Jan Ondrich; David Popp
    Abstract: We examine the effect of in-state and out-of-state renewable energy policies on wind energy patenting. Using a semiparametric fixed-effects Tobit model, we regress patent counts on a series of policy variables within a state and a spatially weighted average for each of these policies implemented in other states. We develop a lower bound for the marginal effects and find important differences across policy types. For renewable portfolio standards, overall demand matters. Policies in other states increase innovation, but own-state policies do not. In contrast, for financial incentives such as tax incentives and subsidy policies, own-state policies induce innovation.
    JEL: C40 O31 Q42 Q48 Q55
    Date: 2018–12
  9. By: Di Cosmo, Valeria; Trujillo-Baute, Elisa
    Abstract: The benefits of smoothing demand peaks in the electricity market has been widely recognised. European countries such 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: Resource /Energy Economics and Policy
    Date: 2019–01–14
  10. By: Dorothée Charlier (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc); Sondès Kahouli (AMURE - Aménagement des Usages des Ressources et des Espaces marins et littoraux - Centre de droit et d'économie de la mer - IFREMER - Institut Français de Recherche pour l'Exploitation de la Mer - UBO - Université de Brest - IUEM - Institut Universitaire Européen de la Mer - CNRS - Centre National de la Recherche Scientifique - IRD - Institut de Recherche pour le Développement - UBO - Université de Brest - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The residential energy demand is growing steadily and the trend is expected to continue in the near future. At the same time, under the impulse of economic crises and environmental and energy policies, many households have experienced reductions in real income and higher energy prices. In the residential sector, the number of fuel-poor households is thus expected to rise. A better understanding of the determinants of residential energy demand, in particular of the role of income and the sensitivity of households to changes in energy prices, is crucial in the context of recurrent debates on energy efficiency and fuel poverty. We propose a panel threshold regression (PTR) model to empirically test the sensitivity of French households to energy price fluctuations-as measured by the elasticity of residential heating energy prices-and to analyze the overlap between their income and fuel poverty profiles. The PTR model allows to test for the non-linear effect of income on the reactions of households to fluctuations in energy prices. Thus, it can identify specific regimes differing by their level of estimated price elasticities. Each regime represents an elasticity-homogeneous group of households. The number of these regimes is determined based on an endogenously PTR-fixed income threshold. Thereafter, we analyze the composition of the regimes (i.e. groups) to locate the dominant proportion of fuel-poor households and analyse their monetary poverty characteristics. Results show that, depending on the income level, we can identify two groups of households that react differently to residential energy price fluctuations and that fuel-poor households belong mostly to the group of households with the highest elasticity. By extension, results also show that income poverty does not necessarily mean fuel poverty. In terms of public policy, we suggest focusing on income heterogeneity by considering different groups of households separately when defining energy efficiency measures. We also suggest paying particular attention to targeting fuel-poor households by examining the overlap between fuel and income poverty.
    Keywords: Residential energy demand,Income non-linearities,Price elasticity,Fuel poverty,Panel threshold regression,France
    Date: 2018
  11. By: Caffera, Marcelo; Chávez, Carlos; Ardente, Analía
    Abstract: We study the individual compliance behavior of polluting firms in an experimental setting under two different penalty functions (a linear and a strictly convex) and two different regulatory instruments (emission standards and tradable pollution permits). We find that a convex penalty, as compared to a linear penalty, increases the market price of pollution permits and the violation rate of firms. The effect of the structure of the fine on the price of permits operates through an increase in the ask-prices of sellers, not on the bids by suppliers. With convex penalties, sellers are not willing to sell a permit at a price as low as with linear penalties. We do not observe an effect of convex penalties on the compliance status of firms with emission standards. These results call for attention on the possible effect that the type of penalties may have on the cost-effectiveness of pollution control programs based on tradable pollution permits.
    Keywords: Environmental policy, enforcement, penalty structure, emissions standards, emissions trading, laboratory experiments
    JEL: C91 K42 L51 Q58
    Date: 2018
  12. By: Dorothée Charlier (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc); Bérangère Legendre (IREGE - Institut de Recherche en Gestion et en Economie - USMB [Université de Savoie] [Université de Chambéry] - Université Savoie Mont Blanc)
    Abstract: In this study we suggest that a more careful and systematic understanding of fuel poverty can be developed through a multidimensional approach to the relationship between monetary poverty, residential energy efficiency, and heating restriction. Our objective is to provide new ways to better identify those who suffer the most from fuel poverty to optimize policy. Thus, the purpose of this paper is to measure poverty in three steps following Sen (1979): (i) combining poverty characteristics into an aggregate measure involving a fuel poverty index (FPI), (ii) identification and comparison of poor people according to existing and new definitions and (iii) testing the robustness of the fuel poverty composite indicator. Our results show that the usual measures reveal a gap that does not consider all the dimensions of fuel poverty, excluding those who are at or above a certain threshold, but who are nevertheless vulnerable. The multidimensional approach enables us to consider all the components of fuel poverty.
    Keywords: Fuel poverty,Multidimensional approach,Heating restriction,Thermal discomfort
    Date: 2018
  13. By: Colmenares, Gloria (University of Muenster); Löschel, Andreas (University of Muenster); Madlener, Reinhard (E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN))
    Abstract: In this paper, we review the state-of-the-art and common practice of energy and climate modeling vis-a-vis the rebound literature, in particular regarding how macroeconomic energy and climate models quantify and include energy and greenhouse gas rebound effects. First, we focus on rebound effects in models of costless energy efficiency improvement that hold other attributes constant (zero-cost breakthrough), and an energy efficiency policy that may be bundled with other product changes that affect energy use (policy-induced efficiency improvement) (Gillingham et al. 2015). Second, we examine macroeconomic studies focusing on energy efficiency both in industry and in private households. Third, we go through a general theoretical revision from micro- to macroeconomic levels (the aggregation level) to include a review of the so-called meso-level studies (focused on the analysis of the production side). From 118 recent studies along the aggregation level, out of which 25 compute rebound calculations, we find that the average energy rebound effect is 58% with a standard deviation of 58%, and when we include green house gas rebound calculations, the magnitude is of the order of 43% with a standard deviation of 55%. Finally, we argue that the rebound effect is a phenomenon that requires a sound understanding of the complex interactions from different dimensions (e.g. aggregation level, heterogeneity, climate, energy conservation and economic growth), and we provide some ideas and motivations for future research.
    Keywords: Rebound effect; Macroeconomic models; Energy efficiency; Energy policy
    JEL: E13 Q41 Q43 Q48 Q54 R13
    Date: 2018–12
  14. By: McCoy, Daire; Lyons, Sean; Morgenroth, Edgar; Palcic, Donal; Allen, Leonie
    Abstract: This paper analyses the impact of broadband infrastructure, along with a range of other local charac- teristics such as motorways and other infrastructure, availability of human capital and access to third level educational facilities, on the location of new business establishments. The sample period spans the intro- duction and recent history of broadband in Ireland. The results indicate that the availability of broadband infrastructure is a significant determinant, but its effects may be mediated by the presence of sufficiently high human capital in an area.
    JEL: L81
    Date: 2018–01–15
  15. By: Esselaar, Stephen; Stork, Christoph
    Abstract: This paper aims to address two questions. Firstly, whether the OECD mobile usage baskets from December 2017 are suitable tools to measure ICT sector performance in developing countries and, secondly, to identify issues that require a regulatory or policy response. This paper uses prices collected in January 2018 from 100 countries, 547 mobile operators and 2560 prepaid products from the Global South to assess the suitability of the OECD basket methodology for ICT policy making and regulation. We propose a simple index that can be compiled using ITU data to measure the drivers of the separation of mobile access and service platforms.
    Date: 2018
  16. By: Kathrin Goldmann (Institute of Transport Economics, Muenster); Gernot Sieg (Institute of Transport Economics, Muenster)
    Abstract: Traffic jams occur even without bottlenecks, simply because of interaction of vehicles on the road. From a driver's point of view, the instability of the traffic flow arises stochastically. Because the probability of a traffic jam increases with the number of cars on the road, there is a traffic flow breakdown externality. This paper offers a method to calculate this externality for traffic on a circuit. Ignoring the stochastic nature of traffic flow breakdowns results in congestion charges that are too small.
    Keywords: Hypercongestion, congestion costs, circuit, stochastic capacity, external costs, congestion charge, traffic experiments
    JEL: L91 R41
    Date: 2018–12

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