nep-reg New Economics Papers
on Regulation
Issue of 2020‒03‒16
nineteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. An economic assessment of the residential PV self-consumption support under different network tariffs By Olivier Rebenaque
  2. Supercharged? Electricity Demand and the Electrification of Transportation in California By Burlig, Fiona PhD; Bushnell, James PhD; Rapson, David PhD; Wolfram, Catherine PhD
  3. Behavioral Aspects of Energy Transition: A KAPSARC-Energy Systems Catapult (ESC) Joint Methodological Report By Emre Hatipoglu; Thamir Alshehri; Matt Lipson; Scott Milne; Simon Pearson
  4. Learning from Power Sector Reform : The Case of Pakistan By Bacon,Robert W.
  5. Assessing the Gas Market Potential in India By KAPSARC, King Abdullah Petroleum Studies and Research Center
  6. Using Supply-Side Policies to Raise Ambition: The Case of the EU ETS and the 2021 Review By Simon Quemin
  7. Forecasting the Intra-Day Spread Densities of Electricity Prices By Ekaterina Abramova; Derek Bunn
  8. Competition and pass-through: evidence from isolated markets By Genakos, Christos; Pagliero, Mario
  9. Commitment and efficiency-inducing tax and subsidy scheme in the development of a clean technology By Mathias Berthod
  10. Are prices reduced from direct competition in high-speed rail? Some unexpected evidences from Italy By Beria, Paolo; Tolentino, Samuel; Filippini, Gabriele
  11. A Dynamic Analysis of Industrial Energy Efficiency and the Rebound Effect By Amjadi, Golnaz; Lundgren, Tommy; Zhou, Whenchao
  12. Investment in Quality Upgrade and Regulation of the Internet By Edmond Baranes; Cuong Hung Vuong
  14. The Impact of Consumer Protection in the Digital Age: Evidence from the European Union By Anja Rösner; Justus Haucap; Ulrich Heimeshoff
  15. Emissions trading with rolling horizons By Simon Quemin; Raphael Trotignon
  16. Distributional Effects of Competition : A Simulation Approach By Rodriguez Castelan,Carlos; Araar,Abdelkrim; Malasquez Carbonel,Eduardo Alonso; Olivieri,Sergio Daniel; Vishwanath,Tara
  17. Does participation in knowledge networks facilitate international market access? The case of offshore wind By Maria Tsouri; Jens Hanson; Håkon Endresen Normann
  18. Co-Investment, Uncertainty, and Opportunism: Ex-Ante and Ex-Post Remedies By Marc Bourreau; Carlo Cambini; Steffen Hoernig; Ingo Vogelsang
  19. Regulatory competition and rules/principles-based regulation By Frantz, Pascal; Instefjord, Norvald

  1. By: Olivier Rebenaque
    Abstract: By generating their own electricity with photovoltaic (PV) panels, households are less dependent on the grid. However, because there is a mismatch between PV generation and consumption, the economic benefits from the bill savings are usually low compared to the economic compensation of the excess electricity fed into the grid. The economic benefits may drop by the implementation of Time-of-Use tariffs or capacity tariff because the prices and the peak load might be higher in the evening at night when PV generation does not occur. Stationary batteries might increase PV self-consumption by storing PV production when electricity prices are low and releasing it during peak prices. However, Feed-in-tariffs applied on the excess generation does not encourage prosumers to invest in a battery. In this paper, we assess the profitability of a PV investment under the current French subsidy scheme. Then, we propose an alternative policy which guarantees an upfront purchase subsidy for the PV and battery investments but without Feed-in tariffs. Based on this alternative policy, we simulate economic benefits from various PV and battery capacities with different pricings. We show that PV self-consumption investment is more profitable with Feed-in tariffs than with a battery premium under Time-of-Use and capacity tariff. Nonetheless, the current subsidy scheme is costly compared to the implementation of a battery premium. Thus, some policy recommendations are provided to improve subsidy scheme.
    Keywords: Battery storage profitability, Self-consumption, Network tariffs, Simulation model, Energy policy, LCOE
    JEL: L59 Q48 L51
    Date: 2020
  2. By: Burlig, Fiona PhD; Bushnell, James PhD; Rapson, David PhD; Wolfram, Catherine PhD
    Abstract: The rapid electrification of the transportation fleet in California raises important questions about the reliability, cost, and environmental implications for the electric grid. A crucial first element to understanding these implications is an accurate picture of the extent and timing of residential electricity use devoted to EVs. Although California is now home to over 650,000 electric vehicles (EVs), less than 5% of these vehicles are charged at home using a meter dedicated to EV use. This means that state policy has had to rely upon very incomplete data on residential charging use. This report summarizes the first phase of a project combining household electricity data and information on the adoption of electric vehicles over the span of four years. We propose a series of approaches for measuring the effects of EV adoption on electricity load in California. First, we measure load from the small subset of households that do have an EV-dedicated meter. Second, we estimate how consumption changes when households go from a standard residential electricity tariff to an EV-specific tariff. Finally, we suggest an approach for estimating the effect of EV ownership on electricity consumption in the average EV-owning household. We implement this approach using aggregated data, but future work should use household-level data to more effectively distinguish signal from noise in this analysis. Preliminary results show that households on EV-dedicated meters are using 0.35 kWh per hour from Pacific Gas and Electric (PGE); 0.38 kWh per hour from Southern California Edison; and 0.28 kWh per hour from San Diego Gas and Electric on EV charging. Households switching to EV rates without dedicated meters are using less electricity for EV charging: 0.30 kWh per hour in PGE. Our household approach applied to aggregated data is too noisy to be informative. These estimates should be viewed as evidence that more focused analysis with more detailed data would be of high value and likely necessary to produce rigorous analysis of the role EVs are playing in residential electricity consumption.
    Keywords: Social and Behavioral Sciences, Electric vehicles, plug-in hybrid vehicles, energy consumption, demand, household, residential areas, policy analysis, empirical methods, data analysis
    Date: 2020–03–01
  3. By: Emre Hatipoglu; Thamir Alshehri; Matt Lipson; Scott Milne; Simon Pearson (King Abdullah Petroleum Studies and Research Center)
    Abstract: KAPSARC’s work on innovation in electricity transitions has focused on unbundling services in the electricity sector (KAPSARC 2016) and developing the microeconomic foundation for a reliability service. Our research has investigated the experiences of industries resembling the electric power sector and those involved in the sharing economy that have recently faced technological disruptions. In Fuentes (2016), we argued that reallocating risk across the electricity market, and the apparent paradox between (spare) capacity and price signals (scarcity) could open up a new role for incumbent electricity firms.
    Keywords: Saudi Arabia, Economic Modeling, Saudi Vision 2030
    Date: 2020–03–11
  4. By: Bacon,Robert W.
    Abstract: Pakistan's power sector underwent a substantial, if protracted, reform process. Beginning with an independent power producer program in 1994, the full unbundling of the national vertically integrated power and water utility, the Water and Power Development Authority, and the establishment of a regulatory entity, the National Electric Power Regulatory Authority, followed in 1997, paving the way for the eventual privatization of one major distribution utility, Karachi Electric, in 2005. Plans to privatize the remaining distribution utilities were shelved following the controversy surrounding the Karachi Electric transaction. A single buyer model has been in operation since the sector restructuring, with the Central Power Purchasing Agency fully separated from transmission and dispatch (the National Transmission and Dispatch Company) in June 2015. Despite these major steps, Pakistan has continued to suffer from inadequate capacity and other constraints, leading to large and frequent blackouts. At the heart of the impasse is the so-called"circular debt"crisis, whereby distribution utilities struggling to collect revenues and meet regulatory targets for transmission and distribution losses default on their payments to generators, and the sector is periodically bailed out by the government once losses accumulate to intolerable levels, at high cost to the exchequer. This dynamic has undermined incentives for utilities to improve their efficiency, while discouraging generators from investing in new capacity to address supply shortages. In the meantime, little has been done to accelerate access to electricity to the significant share of unserved population in rural areas.
    Keywords: Energy Policies&Economics,Economics and Finance of Public Institution Development,Privatization,De Facto Governments,Democratic Government,Public Sector Administrative&Civil Service Reform,State Owned Enterprise Reform,Energy Privatization,Public Sector Administrative and Civil Service Reform,Energy and Mining,Energy Demand,Energy and Environment,Energy Sector Regulation,Power&Energy Conversion
    Date: 2019–05–06
  5. By: KAPSARC, King Abdullah Petroleum Studies and Research Center (King Abdullah Petroleum Studies and Research Center)
    Abstract: India faces a pressing energy shortage. Despite rapid economic development, a large section of the population has little or no access to electricity, while the cost, reliability and availability of power constrain growth and investment in key sectors. As a result of this unmet demand, India has the potential to become one of the world’s largest consumers of natural gas. The commodity offers the government a cost-effective and environmentally sound answer to the country’s rising energy needs — yet the gas sector has struggled since 2010. The main obstacles to increasing the share of gas in the energy mix are a slowdown in domestic production, pricing and allocation issues, inefficient regulatory practices, and inadequate infrastructure.
    Keywords: City Gas, India, Natural Gas
    Date: 2019–03–08
  6. By: Simon Quemin
    Abstract: Unlike standard supply-side policies, the market stability reserve (MSR) can be used as a potent means of raising climate ambition. We calibrate an emissions trading model to the EU ETS and show that allowing firms to use rolling finite planning horizons can replicate past annual price and banking developments well compared to a standard infinite horizon, including the 2018 price rally. When firms have bounded foresight, indirectly raising ambition through the MSR is not equivalent to directly raising ambition through the emissions cap trajectory. Leveraging the MSR to raise ambition can be efficiency improving as it partially compensates for bounded foresight by frontloading abatement efforts so we analyze its interdependence with the cap trajectory to exploit synergies and minimize regulatory costs. Additionally, we quantitatively assess and compare changes in the MSR parameters for the 2021 review. In any case, MSR-induced resilience to demand shocks remains limited and one-sided by design.
    Keywords: Emissions trading, Rolling horizon, Raising ambition, Market stability reserve, EU ETS
    JEL: D47 D81 H32 Q58
    Date: 2020
  7. By: Ekaterina Abramova; Derek Bunn
    Abstract: Intra-day price spreads are of interest to electricity traders, storage and electric vehicle operators. This paper formulates dynamic density functions, based upon skewed-t and similar representations, to model and forecast the German electricity price spreads between different hours of the day, as revealed in the day-ahead auctions. The four specifications of the density functions are dynamic and conditional upon exogenous drivers, thereby permitting the location, scale and shape parameters of the densities to respond hourly to such factors as weather and demand forecasts. The best fitting and forecasting specifications for each spread are selected based on the Pinball Loss function, following the closed-form analytical solutions of the cumulative distribution functions.
    Date: 2020–02
  8. By: Genakos, Christos; Pagliero, Mario
    Abstract: We measure how pass-through varies with competition in isolated oligopolistic markets with captive consumers. Using daily pricing data from gas stations, we study how unanticipated and exogenous changes in excise duties (which vary across different petroleum products) are passed through to consumers in markets with different numbers of retailers. We find that pass-through increases from 0.44 in monopoly markets to 1 in markets with four or more competitors and remains constant thereafter. Moreover, the speed of price adjustment is about 60% higher in more competitive markets. Finally, we show that geographic market definitions based on arbitrary measures of distance across sellers, often used by researchers and policy makers, result in significant overestimation of the pass-through when the number of competitors is small.
    Keywords: pass-through; tax incidence; gasoline; market structure; competition
    JEL: H22 L10
    Date: 2019–07
  9. By: Mathias Berthod (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This paper analyses the optimal environmental policy design in situations where the regulator - hereafter a government - can not strongly commit to announcements about future tax and subsidy levels. The motivation is that long-run perspectives of environmental policies often face short run concerns. One consistent illustration in Europe is related to the french government which cancelled the carbon tax increase for year 2019 following recent demonstrations of the yellow vest movement. Other examples include the case of the australian government abolishing the carbon tax in 2014, or the spanish government abruptly cancelling the renewable energy subsidies in 2012. I specifically consider environmental policies which aim at supporting the transition from the use of dirty technologies to clean technologies by subsidizing innovation. The interplay between innovation and environmental policies has been extensively addressed.1 However, a large share of the literature abstracts from the issue of commitment. In most papers, the analysis consists in comparing the optimal policy and a business-as-usual scenario (see Bosetti et al., 2009 ; Edenhoffer et al., 2006 ; Popp, 2006). Yet several authors point out that the government lack of commitment may lead to inefficient environmental innovation (see Wirl, 2013 ; Montero, 2011). The question thus arises: if a government can not strongly commit to announcements about future tax and subsidy levels, is there an efficient policy design? And, if so, how does it differ from the case of strong commitment?
    Date: 2020
  10. By: Beria, Paolo; Tolentino, Samuel; Filippini, Gabriele
    Abstract: The literature on open-access rail competition has been quite unanimous in pointing out the positive effects of the entry of the (few) newcomers in their respective markets. Generally speaking, quality has increased and frequency too. The effect on prices has also generally been what everybody expected: the newcomer is pricing less than the incumbent and overall the prices on the liberalised market are lower than the counterfactual ones. Without denying all the positive effects that rail competition in Italy has brought since 2012, thanks to the large-scale direct competition of NTV/Italo vs. the incumbent Trenitalia, in this paper we will provide the first evidence of something new, happened in the last 12 months. Since 2018, in fact, while frequencies and passengers continue to grow, for the first time also the average prices started increasing, even in those routes just opened to competition. The scope of this work is limited to analyse everyday train prices in a period of three years on numerous Italian routes, showing how prices changed over time and in particular according to the presence of competition and route characteristics. Findings are interesting: prices do not fall in all routes where competition starts, or at least just for a short period. In general, 2019 saw a consistent realignment of prices to a higher level than 2017-2018, for both competitors. One obvious explanation could be that the competitors are just apparently competing, or that production costs have raised (or both). This would be by far the worst outcome of a liberalisation process: costs up and cartel prices up with the costs. But the same phenomenon could be explained differently if there is no overcapacity: competition is working on parameters different than average prices (quality, frequency, product differentiation, price discrimination). We are still not able to demonstrate the existence of a cartel, so this work is just intended to show what has happened, and not why.
    Keywords: rail prices; competition; intermodality; Italy; rail; Italo; NTV; Trenitalia; high-speed
    JEL: D43 L92 R40
    Date: 2020–02–27
  11. By: Amjadi, Golnaz (CERE - the Center for Environmental and Resource Economics); Lundgren, Tommy (CERE - the Center for Environmental and Resource Economics); Zhou, Whenchao (CERE - the Center for Environmental and Resource Economics)
    Abstract: Energy efficiency improvement (EEI) is known as a cost-effective measure to meet energy, climate change and sustainable development targets. However, behavioral responses to such improvements referred to as energy rebound effect may change the emission and energy saving gains expected from EEI. Despite broad consensus around the existence of energy rebound effect, significant divergence exists on how to measure this effect, which matters in order to set up realistic energy and climate policies. In this study, we propose a new approach to measure the energy rebound effect in both the short and the long run using a two-stage procedure, applied to a firm-level data set from Swedish manufacturing industry over the period 1997–2008. In the first stage, we use data envelopment analysis (DEA) in order to obtain energy efficiency scores. In the second stage, we estimate energy rebound effect using dynamic panel data regression model. We show that in the short run, partial rebound effects exist within all manufacturing sectors, meaning that the rebound effect decreases, but does not totally offset, the potential energy and emission savings expected from EEI. In the long run, our results suggest that rebound effects decrease within most of the sectors.
    Keywords: Energy Efficiency Improvement; Rebound Effect; Data Envelopment Analysis
    JEL: D21 D22 Q41
    Date: 2020–03–02
  12. By: Edmond Baranes; Cuong Hung Vuong
    Abstract: This paper studies the investment decision by a monopolistic internet service provider (ISP) in different regulatory environments. We consider that the ISP could technically provide separate quality upgrades to two vertically differentiated content providers (CPs); therefore, it could potentially extract the CPs’ marginal profits through an offer to provide the quality upgrades. Our results show that if unregulated, the ISP optimally provides asymmetric quality upgrades, in favor of the high-quality CP. This subsequently increases the degree of content differentiation, softening competition between the CPs. Imposing a nondiscrimination regulation that forces the ISP to provide an equal quality upgrade to both CPs, however, can reduce the ISP.s investment incentive and social welfare. Furthermore, the investment level is higher if the regulated ISP is allowed to charge the CPs. Finally, a socially optimal investment can be opposite to the ISP’s choice when the contents are enough substitutes.
    Keywords: complementary, differentiation, investment, internet, regulation
    JEL: L13 L51 L96
    Date: 2020
  13. By: Francesco Crespi; Serenella Caravella
    Abstract: The study focuses on the impact exerted on private R&D expenditures by regular and innovative public procurement when taken in combination or insolation with supply-push measures. The econometric analysis relies on a pulled sample of 4,206 Italian manufacturing firms observed between 2010-2014. The empirical exercise confirms previous evidences on the relevance of technology-push instruments in sustaining firms’ innovativeness. On the contrary, the ability of public procurement activities in shaping innovative investments is found to depend on a number of instances related to: i) the adoption of contemporaneous supply side measures; ii) the inclusion of innovative demand in procurement contracts. The analysis provides important suggestions with respect to the potential effectiveness of demand-side tools when implemented in weak administrative and innovation systems, as in the Italian case. Moreover, it is shown that the design of the policy mix matters, and its effectiveness improves when demand-side and supply-side instruments are jointly implemented.
    Keywords: Demand-pull policies, Public Procurement, Policy-mix, Non-parametric analysis.
    JEL: H57 O25 O38
    Date: 2020–02
  14. By: Anja Rösner; Justus Haucap; Ulrich Heimeshoff
    Abstract: We investigate the effect of an EU-wide consumer protection regulation on consumer trust as well as consumer behavior. The Unfair Commercial Practice Directive (UCPD) was implemented by EU member states between 2007 and 2010. We utilize data from the Special and Flash Eurobarometer for the years between 2006 and 2014 and experts’ evaluation on consumer protection levels before the introduction of the regulation. This rich data set allows us to apply a difference-in-difference estimator with multiple time periods. We find a significant relationship between the introduction of the UCPD and consumer trust and cross-border purchases for countries with a low consumer protection level before the introduction of the UCPD. The relationship increases over time and stays then relatively constant.
    Keywords: consumer protection, UCPD, B2C, e-commerce, consumer trust, cross-border purchase
    JEL: D18 K20 L50 L51
    Date: 2020
  15. By: Simon Quemin; Raphael Trotignon
    Abstract: We build a model of competitive emissions trading under uncertainty with supply-side control. Firms can use rolling planning horizons to deal with uncertainty and can also exhibit bounded responsiveness to the control. We tailor the model to the EU ETS, calibrate it to 2008-2017 market developments and find that a rolling horizon is able to reconcile the banking dynamics with discount rates implied from futures' yield curves. We evaluate the 2018 market reform, decompose the impacts of its main features and quantify how they hinge on the firms' horizon and responsiveness. We highlight important implications for policy design and evaluation.
    Keywords: Emissions trading, Rolling horizons, Bounded rationality, Decision-making under uncertainty, Supply-side control, EU-ETS
    Date: 2019
  16. By: Rodriguez Castelan,Carlos; Araar,Abdelkrim; Malasquez Carbonel,Eduardo Alonso; Olivieri,Sergio Daniel; Vishwanath,Tara
    Abstract: Understanding the economic and social effects of the recent global trends of rising market concentration and market power has become a policy priority, particularly in developing countries where markets are often more concentrated. In this context, since the poor are typically the most affected by lack of competition, new analytical tools to assess the distributional effects of variations in market concentration in a rapid and cost-efficient manner are required. To fill this knowledge gap, this paper introduces a simple simulation method, the Welfare and Competition tool (WELCOM), to estimate with minimum data requirements the direct distributional effects of market concentration through the price channel. Using this simple yet novel tool, this paper also illustrates the simulated distributional effects of reducing concentration in two markets in Mexico that are known for their high level of concentration: mobile telecommunications and corn products. The results show that increasing competition from four to 12 firms in the mobile telecommunications industry and reducing the market share of the oligopoly in corn products from 31.2 percent to 7.8 percent would achieve a combined reduction of 0.8 percentage points in the poverty headcount as well as a decline of 0.32 points in the Gini coefficient.
    Date: 2019–05–02
  17. By: Maria Tsouri (TIK Centre for Technology Innovation and Culture, University of Oslo, Oslo, Norway); Jens Hanson (TIK Centre for Technology Innovation and Culture, University of Oslo, Oslo, Norway); Håkon Endresen Normann (TIK Centre for Technology Innovation and Culture, University of Oslo, Oslo, Norway)
    Abstract: This article explores the effects of knowledge network participation on firms` international market access. We use a unique dataset comprising Norwegian firm data on RD&D (research, development and demonstration) and market participation in offshore wind. The empirical results show that participating in pilot and demonstration projects positively affects firms’ presence in international markets, while we do not observe the same positive effect for R&D projects. However, the econometric evidence shows that increasing extents of international collaborators, particularly from countries with home markets, contributes to a positive effect of R&D project participation on market access, while negative effects are observed for domestic collaborators. The results suggest that transnational knowledge linkages constitute an important mechanism for international market access, especially for countries with weak or absent domestic markets. We suggest that RD&D policy design could benefit from ensuring international collaboration, particularly with partners in countries with domestic markets, and support for demonstration activities.
    Date: 2020–03
  18. By: Marc Bourreau; Carlo Cambini; Steffen Hoernig; Ingo Vogelsang
    Abstract: In this paper, we study the impact of co-investment by incumbents and entrants on the roll-out of network infrastructures under demand uncertainty. We show that if entrants can wait to co-invest until demand is realized, the incumbents’ investment incentives are reduced and total coverage can be lower than in a benchmark with earlier co-investment. We consider two remedies to correct these distortions: (i) co-investment options purchased ex-ante by entrants from incumbents, and (ii) risk premia paid ex-post by entrants. We show that co-investment options cannot fully reestablish total coverage, while premia can do so in most cases, though at the cost of less entry. Finally, we show that an appropriate combination of ex-ante and ex-post remedies can improve welfare.
    Keywords: co-investment, uncertainty, opportunism, options, risk premia
    JEL: L96 L51
    Date: 2020
  19. By: Frantz, Pascal; Instefjord, Norvald
    Abstract: This paper analyses how regulatory competition affects principles‐based and rules‐based systems of regulation. Competition between regulators creates the possibility of regulatory arbitrage that generates a race to the bottom by regulators that is socially harmful. We derive the welfare effects of such competition and the regulatory response to these effects, in particular, regulatory harmonisation. We find, however, that regulators can adopt harmful regulatory harmonisation. These effects can make coordination efforts in developing global regulation socially desirable. We demonstrate, moreover, that corporate lobbying is not always harmful: it can both encourage and discourage socially desirable regulation.
    JEL: G28
    Date: 2018–03–11

This nep-reg issue is ©2020 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.