nep-reg New Economics Papers
on Regulation
Issue of 2020‒07‒13
24 papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. The Tradeoff between Indirect Network Effects and Product Differentiation in a Decarbonized Transport Market By Gøril L. Andreassen; Knut Einar Rosendahl
  2. Cost Pass-through in the British Wholesale Electricity Market: Implications of Brexit and the ETS reform By Bowei Guo; Giorgio Castagneto Gissey
  3. Merchant renewables and the valuation of peaking plant in energy-only markets By Simshauser, P.
  4. The chicken or the egg: Technology adoption and network infrastructure in the market for electric vehicles By Nathan Delacrétaz; Bruno Lanz; Jeremy van Dijk
  5. Electricity Market Integration, Decarbonisation and Security of Supply: Dynamic Volatility Connectedness in the Irish and Great Britain Markets By Do, H.; Nepal, R.; Jamasb, T.
  6. Beyond monetary barriers to electric vehicle adoption: Evidence from observed usage of private and shared cars By Habla, Wolfgang; Huwe, Vera; Kesternich, Martin
  7. Measuring the Environmental Benefits of Electric Vehicles (Relative to the Car that Wasn’t Bought) By Erich Muehlegger; David S. Rapson
  8. Introducing Competition in the European Rail Sector: Insights for a Holistic Regulatory Assessment By Yves Crozet
  9. Electricity Market Integration, Decarbonisation and Security of Supply: Dynamic Volatility Connectedness in the Irish and Great Britain Markets By Hung Do; Rabindra Nepal; Tooraj Jamasb
  10. Breaking Routine for Energy Savings: An Appliance-level Analysis of Small Business Behavior under Dynamic Prices By Jiyong Eom; Frank A. Wolak
  11. Identifying Innovative Actors in the Electricicity Supply Industry Using Machine Learning: An Application to UK Patent Data By Dolphin, G.; Pollitt, M.
  12. Energy mix, technological change, and the environment By Anelí Bongers
  13. The cost of CO2 abatement from Britain's only PWR: Sizewell B By David Newbery
  14. The Cost of Trade Distortion: Britain's Carbon Price Support and Cross-border Electricity Trade By Bowei Guo; David Newbery
  15. An Artificial Intelligence Solution for Electricity Procurement in Forward Markets By Thibaut Th\'eate; S\'ebastien Mathieu; Damien Ernst
  16. Competition and Quality: Evidence from High-Speed Railways and Airlines By Hanming Fang; Long Wang; Yang Yang
  17. Network Topology and Market Structure By Chen, Ying-Ju; Zenou, Yves; Zhou, Junjie
  18. Border Carbon Adjustments and Industrial Competitiveness in a European Green Deal By Stuart Evans; Michael A Mehling; Robert A Ritz; Paul Sammon
  19. Is the NEM broken? Policy discontinuity and the 2017-2020 investment megacycle By Paul Simshauser; Joel Gilmore
  20. Merchant utilities and boundaries of the firm: vertical integration in energy-only markets By Paul Simshauser
  21. What effect has the 2015 power market reform had on power prices in China? Evidence from Guangdong and Zhejiang By Bai-Chen Xie; Jun Xu; Michael G Pollitt
  22. What does the power outage on 9 August 2019 tell us about GB power system By Janusz Bialek
  23. What Can We Learn from EU ETS? By Vollebergh, Herman; Brink, Corjan
  24. Pricing Pollution By Torben K. Mideksa

  1. By: Gøril L. Andreassen; Knut Einar Rosendahl
    Abstract: What factors determine whether it is optimal with one or more technologies in a decarbonized road transport sector, and what policies should governments choose? We investigate these questions theoretically and numerically through a static, partial equilibrium model for the road transport market. We find that two important factors that determine whether it will be and whether it should be one or more technologies are how close substitutes the two vehicle technologies are and the number of vehicles of the other technology. Our numerical results indicate that with two incompatible networks, two differentiated goods are optimal compared to only one if they are not too close substitutes. The first-best policy is a subsidy of the markup on charging and filling, where the markup is higher the higher the increased utility of more stations. In addition, to avoid an unwanted lock-in, a temporary stimulus may be needed to reach the stable equilibrium.
    Keywords: ndirect network effects, decarbonisation, climate policy, electric vehicles, hydrogen vehicles
    JEL: H23 L14 L91 Q58
    Date: 2020
  2. By: Bowei Guo (Faculty of Economics, University of Cambridge); Giorgio Castagneto Gissey (Bartlett School of Environment, Energy and Resources, University College London)
    Keywords: Electricity market, Cost pass-through, Competition, Carbon price, VECM
    JEL: L13 Q48 D41 H23 C32
    Date: 2019–12
  3. By: Simshauser, P.
    Abstract: Merchant renewables are a new asset class. With historically high cost structures and low wholesale prices associated with merit order effects, continuity of entry has been reliant on Renewable Portfolio Standards or other policy initiatives such as government-initiated Contracts-for-Differences. But in Australia’s National Electricity Market, sharply falling costs of renewables and volatile wholesale market conditions from coal plant exits has led to a surprising number of merchant intermittent renewable investments. Adding to the merchant renewable fleet are older wind plants whose inaugural long-dated PPAs recently matured. Rolling over PPAs is possible, but not necessarily optimal. In this article, a merchant gas turbine, merchant wind, and an integrated portfolio comprising both plants are valued in the NEM’s South Australian region. Asset valuations reveal surprising results. The modelling sequence shows stand-alone gas turbine valuation metrics suffer from modest levels of missing money, that merchant wind can commit to some level of forward (fixed volume) swap contracts in-spite of intermittent production, but the combined portfolio tightens overall valuation metrics significantly. Above all, the combined portfolio is financially tractable, overcoming the missing money for a gas turbine plant undertaking peaking duties. In a NEM region where intermittent renewable market share exceeds 50%, this suggests the energy-only, real-time gross pool design may yet be deemed suitable vis-à-vis meeting environmental objectives and Resource Adequacy.
    Keywords: Merchant renewables, peaking plant, power plant valuations
    JEL: D61 L94 L11 Q40
    Date: 2020–01–08
  4. By: Nathan Delacrétaz; Bruno Lanz; Jeremy van Dijk
    Abstract: We document non-linear stock effects in the relationship linking emerging technology adoption and network infrastructure increments. We exploit 2010-2017 data covering nascent to mature electric vehicle (EV) markets across 422 Norwegian municipalities together with two complementary identification strategies: control function regressions of EV sales on flexible polynomials in the stock of charging stations and charging points, and synthetic control methods to quantify the impact of initial infrastructure provision in municipalities that previously had none. Our results are consistent with indirect network effects and the behavioral bias called "range anxiety", and support policies targeting early infrastructure provision to incentivize EV adoption.
    Keywords: Technology adoption; network externality; electric vehicles; charging infrastructure; two-sided markets; behavioral bias; range anxiety; environmental policy.
    JEL: L14 D62 L91 O33 Q48 Q55 Q58
    Date: 2020–08
  5. By: Do, H.; Nepal, R.; Jamasb, T.
    Abstract: This study investigates the volatility connectedness between the Irish and Great Britain electricity markets and how it is driven by changes in energy policy, institutional structures and political ideologies. We assess various aspects of this volatility connectedness including static (unconditional) vs dynamic (conditional), symmetric vs asymmetric characteristics between 2009 and 2018. We find that volatility connectedness is time varying and is significantly affected by important events, policy reforms or market re-designs such as Brexit, oil price slump, increasing share of renewables, and fluctuations in the exchange rates. Our asymmetric analysis shows that the magnitude of the good volatility connectedness is marginally larger than that of the bad volatility connectedness. Our result suggests that good volatility levels would be even higher once the Irish market adopts the carbon price floor. Therefore, supporting renewable generation by setting an appropriate carbon price in interconnected wholesale electricity markets will improve market integration.
    Keywords: Market integration, electricity, renewable, energy policy, volatility
    JEL: D4 L94 Q2 Q4
    Date: 2020–02–03
  6. By: Habla, Wolfgang; Huwe, Vera; Kesternich, Martin
    Abstract: We use car-level micro data to provide empirical evidence on the usage of conventional and electric vehicles (EVs) in private and car sharing fleets in Germany. We shed light on both monetary and non-monetary barriers to EV adoption and usage by exploiting the feature that variable costs are identical for shared vehicles but different for private car owners across engine types. While drivers respond to monetary incentives when using conventional cars, this does not hold for EVs. We find that EVs are, on average, driven shorter distances than conventional vehicles, both in terms of annual and single-day mileage, even if costs are identical. We also document that car sharing intensifies the usage of conventional cars but not that of EVs.
    Keywords: electric vehicles,internal combustion engine vehicles,barriers to adoption,cruising range,driving patterns,car sharing,range limitations,range anxiety
    JEL: R41 D12 Q50
    Date: 2020
  7. By: Erich Muehlegger; David S. Rapson
    Abstract: The true net environmental benefit of an electric vehicle (EV) is measured relative to the vehicle that an EV buyer would have bought and driven had they not opted for an EV. This “counterfactual” vehicle cannot be observed, but its fuel economy can be estimated. We use quasi-experimental variation in a generous California EV subsidy program to show that buyers of EVs would have, on average, purchased relative fuel-efficient gasoline-powered cars had they not gone electric. The true incremental pollution abatement arising from the EV is thus substantially smaller when compared to this appropriate reference vehicle, as opposed to, say, the average new passenger car.
    JEL: Q48 Q52 Q58 R4
    Date: 2020–05
  8. By: Yves Crozet (University of Lyon)
    Abstract: This paper assesses the impact of European rail transport regulation in the past 25 years. It highlights competition as a necessary condition to overcome the inertia of legacy railway operators, but argues that competition is not sufficient to increase efficiency when they feel protected by the state.
    Date: 2019–11–13
  9. By: Hung Do (School of Economics and Finance, Massey University, New Zealand); Rabindra Nepal (University of Wollongong); Tooraj Jamasb (Copenhagen Business School)
    Keywords: Market integration, electricity, renewable, energy policy, volatility
    JEL: D4 L94 Q2 Q4
    Date: 2020–02
  10. By: Jiyong Eom; Frank A. Wolak
    Abstract: Small businesses are typically committed to providing a positive customer experience and therefore may exhibit a response to dynamic electricity prices different from residential or industrial customers. We conduct a field experiment to determine the extent to which small businesses respond through re-configuration of typical routines throughout the experiment period versus through adjustments to specific dynamic pricing events. Using a customer-level survey of appliance ownership, we estimate the hourly response patterns of individual appliances to participation in the experiment versus individual dynamic pricing events. Consistent with our re-configuration hypothesis, small businesses primarily curtail electricity usage throughout the experiment period, although we also find a small imprecisely estimated response to dynamic pricing events on top of the re-configuration effect. Appliances not critical to a positive customer experience such as dish dryers, food storage units, lights, electric motors & pumps, and industrial heaters are the major sources of the energy savings from the re-configuration actions of these small businesses.
    JEL: Q4 Q41
    Date: 2020–05
  11. By: Dolphin, G.; Pollitt, M.
    Abstract: The recent history of the Electricity Supply Industry (ESI) of major western economies was marked by two fundamental changes: a transition toward liberalised electricity markets and a policy-led push to decarbonise the electricity generation portfolio. These changes not only affected the pace and nature of innovation activity in the sector but also altered the set of innovative actors. The present paper provides a methodology to identify these actors, which we apply to priority patents filed at the UK Intellectual Property Office over the period 1955-2016. The analysis also indicates that (i) the recent increase in innovation activity originates overwhelmingly from upstream Original Equipment Manufacturers and (ii) innovation activity in `green' electricity supply technologies slowed down in recent years.
    Keywords: innovation, electricity sector, machine learning
    JEL: L94 O31 O38
    Date: 2020–03–03
  12. By: Anelí Bongers (Departamento de Teoría e Historia Económica, University of Málaga)
    Abstract: This paper studies the relationship between the energy mix and the environment using a theoretical framework in which two alternative energy sources are considered: fossil fuels (dirty energy) and renewable energy (clean energy). We find that a positive aggregate productivity shock increases energy consumption and emissions but reduces energy intensity and emissions per unit of output as renewable energy consumption increases, that is, carbon emissions are procyclical but emissions per unit of output are countercyclical. Second, an energy efficiency improvement provokes a ``rebound effect'' above $100\%$ (the backfire effect), resulting in a rise of pollutant emissions by increasing energy use. Third, a technological improvement in emissions leads to a reduction in emissions per unit of fossil fuel but also implies a slow-down in the adoption of renewable energy sources. Finally, we also study the effects of a price shock to the pollutant energy, resulting in a substitution of the ``dirty'' by the ``clean'' energy, leading to a decline in energy consumption and emissions but at the cost of decreasing output.
    Keywords: Energy mix; Emissions; Fossil fuels; Renewable energy; Technological change
    JEL: Q41 Q42 Q43 Q52 Q55
    Date: 2020–07
  13. By: David Newbery (Faculty of Economics, University of Cambridge)
    Keywords: Cost of CO2, Nuclear power, RAB, WACC, Cost Benefit Analysis
    JEL: D61 H23 L94 C54 E43 H54 L94 Q54
    Date: 2020–05
  14. By: Bowei Guo (Faculty of Economics, University of Cambridge); David Newbery (Faculty of Economics, University of Cambridge)
    Keywords: Carbon tax, Bilateral Trading, Electricity Market, Cost-benefit analysis
    JEL: Q48 F14 D61 C13
    Date: 2020–03
  15. By: Thibaut Th\'eate; S\'ebastien Mathieu; Damien Ernst
    Abstract: Retailers and major consumers of electricity generally purchase a critical percentage of their estimated electricity needs years ahead on the forward markets. This long-term electricity procurement task consists of determining when to buy electricity so that the resulting energy cost is minimised, and the forecast consumption is covered. In this scientific article, the focus is set on a yearly base load product, named calendar (CAL), which is tradable up to three years ahead of the delivery period. This research paper introduces a novel algorithm providing recommendations to either buy electricity now or wait for a future opportunity based on the history of CAL prices. This algorithm relies on deep learning forecasting techniques and on an indicator quantifying the deviation from a perfectly uniform reference procurement strategy. Basically, a new purchase operation is advised when this mathematical indicator hits the trigger associated with the market direction predicted by the forecaster. On average, the proposed approach surpasses benchmark procurement strategies and achieves a reduction in costs of 1.65% with respect to the perfectly uniform reference procurement strategy achieving the mean electricity price. Moreover, in addition to automating the electricity procurement task, this algorithm demonstrates more consistent results throughout the years compared to the benchmark strategies.
    Date: 2020–06
  16. By: Hanming Fang (University of Pennsylvania); Long Wang (ShanghaiTech University); Yang Yang (The Chinese University of Hong Kong)
    Abstract: The entry of High-Speed Railways (HSR) represents a disruptive competition to air-lines, particularly for short- to medium-distance journeys. Utilizing a unique dataset that contains the details of all ?ights departing from Beijing to 113 domestic desti-nations in China since January 2009, we employ a di?erence-in-di?erences approach to examine the e?ects of HSR entry on the quality of service provided by airlines as proxied by their on-time performance, and to identify the channels through which competition leads to quality improvement. We document two main ?ndings. First, the competition from the entry of HSR leads to signi?cant reductions in the mean and variance of travel delays on the a?ected airline routes. Second, the reductions in departure delays–which are controlled mostly by airlines, and the duration of taxi-in time–which are controlled mostly by destination airports, are identi?ed as the main sources of the improvement in the airlines’ on-time performance.
    Keywords: Competition; Quality; Transportation; Airlines; High-speed Rail; On-time Performance
    JEL: L1 L91 O18 R4
    Date: 2020–06–26
  17. By: Chen, Ying-Ju; Zenou, Yves; Zhou, Junjie
    Abstract: We develop a two-stage oligopolistic network competition model where, first, firms simultaneously determine their prices and, then, users connected through a network determine their product's consumption. We show that denser networks (network topology) reduce prices and that a higher number of firms (market structure) reduces prices only when competition is weak. However, the price for the most influential users can increase with the number of firms when competition is very fierce and when there are enough network externalities. We also show that increasing competition always leads to a lower firm's profit while increasing network density leads to a clockwise rotation of the profit curve as a function of the number of firms. Finally, we study the effect of network topology and market structure on price dispersion and determine the optimal network structure from the perspective of both firms and users.
    Keywords: competitive pricing; Entry; market structure; optimal network structure
    JEL: D43 D85 L13 L14
    Date: 2020–03
  18. By: Stuart Evans (London School of Economics); Michael A Mehling (CEEPR, Massachusetts Institute of Technology); Robert A Ritz (EPRG, University of Cambridge); Paul Sammon (London School of Economics)
    Keywords: Border carbon adjustment, carbon pricing, competitiveness, international trade
    JEL: H23 K33 Q54
    Date: 2020–05
  19. By: Paul Simshauser (Griffith Business School, Griffith University); Joel Gilmore (Griffith Business School, Griffith University)
    Keywords: Renewables, energy markets, investment cycles
    JEL: D24 G31 L94
    Date: 2020–05
  20. By: Paul Simshauser (Griffith Business School, Griffith University)
    Keywords: vertical integration, electricity markets, energy-only markets, transaction costs, credit ratings
    JEL: D23 D24 G34 L94
    Date: 2020–05
  21. By: Bai-Chen Xie (College of Management and Economics, Tianjin University); Jun Xu (China Institute of Regulation Research, Zhejiang University of Finance and Economics); Michael G Pollitt (EPRG, University of Cambridge)
    Keywords: Chinese power market reform, electricity prices, No.9 Document
    JEL: L94
    Date: 2020–05
  22. By: Janusz Bialek (Newcastle University, UK)
    Keywords: power blackouts, UK electricity, security of supply
    JEL: L94 O31 O38
    Date: 2020–03
  23. By: Vollebergh, Herman (Tilburg University, School of Economics and Management); Brink, Corjan
    Date: 2020
  24. By: Torben K. Mideksa
    Abstract: I examine a policy-making game among countries that must choose both a policy instrument (e.g., a tax or a quota) and its intensity (i.e., the tax rate or the quota level) to price pollution. When countries price pollution non-cooperatively, they not only set the intensity inefficiently, they are also likely to adopt Pigouvian fees, despite quotas being better from a welfare perspective. Adopting a Pigouvian fee to address a multi-country externality generates a risk externality, and non-cooperatively chosen quotas can generate higher social welfare than maximum social welfare Pigouvian fees can deliver.
    Keywords: environmental policy, global pollution, international relations
    JEL: C72 D81 F50 H21 Q38 Q58
    Date: 2020

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