nep-reg New Economics Papers
on Regulation
Issue of 2020‒09‒21
fifteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Electricity balancing as a market equilibrium: Estimating supply and demand of imbalance energy By Eicke, Anselm; Ruhnau, Oliver; Hirth, Lion
  2. Comparing volume and blend renewable energy mandates under a carbon budget By Amigues, Jean-Pierre; Lafforgue, Gilles; Chakravorty, Ujjayant; Moreaux, Michel
  3. Heterogeneous Treatment Effects of Nudge and Rebate:Causal Machine Learning in a Field Experiment on Electricity Conservation By Kayo MURAKAMI; Hideki SHIMADA; Yoshiaki USHIFUSA; Takanori IDA
  4. The incidence of VAT reforms in electricity markets: Evidence from Belgium By HINDRIKS Jean,; SERSE Valerio,
  5. Access prices indexed to geographical coverage of innovative telecom services By Henriques, David
  6. Distributional Effects of Reducing Energy Subsidies: Evidence from Recent Policy Reform in Argentina By Fernando Giuliano; Maria Ana Lugo; Ariel Masut; Jorge Puig
  7. How does the Ownership of Electricity Distribution relate to Energy Poverty in Latin America and the Caribbean ? By Lisa Bagnoli; Salvador Bertomeu; Antonio Estache
  8. Is Real-time Pricing Smart for Consumers? By Boom, Anette; Schwenen, Sebastian
  9. Policies and Instruments for Self-Enforcing Treaties By Bård Harstad; Francesco Lancia; Alessia Russo
  11. Effectiveness of energy efficiency certificates as drivers for industrial energy efficiency projects By Di Foggia, Giacomo
  12. Transport policy for a post-Covid UK By Newbery, D.
  13. Sharing when stranger equals danger: Ridesharing during Covid-19 pandemic By Ivaldi, Marc; Palikot, Emil
  14. Adopt or innovate: understanding technological responses to cap-and-trade By Calel, Raphael
  15. Trans-Boundary Air Pollution Spillovers: Physical Transport and Economic Costs by Distance By Fu, Shihe; Viard, Brian; Zhang, Peng

  1. By: Eicke, Anselm; Ruhnau, Oliver; Hirth, Lion
    Abstract: Stable power systems require equalizing demand and supply of electricity at short time scales. Such electricity balancing is often understood as a sequential process: exogenous shocks, such as weather events or technical outages, cause system imbalances that system operators close by activating balancing reserves. By contrast, we study electricity balancing as a market where the equilibrium price (imbalance charge) and quantity (system imbalance) are determined endogenously by supply and demand. System operators supply imbalance energy by activating reserves. Market parties that, deliberately or not, deviate from schedules create demand for imbalance energy. When deliberately taking open positions, firms respond to price signals from electricity markets and imbalance charges. Based on this market framework, we estimate the demand curve of imbalance energy, and hence the price responsiveness of market parties to deviate from schedules. To overcome the classical endogeneity problem of price and quantity in the market equilibrium, we deploy instruments that we derive from a novel theoretical framework. Using data from Germany, we find that firms reduce the physical system imbalance by about 2.8 MW for each increase in the imbalance charge by EUR 1 per MWh. This price response is remarkable because such behavior is prohibited. It is, however, beneficial: on average, such strategic deviations reduced the German system imbalance by 20%.
    Keywords: Electricity balancing,Intraday electricity market,Imbalance energy,Arbitrage trading
    JEL: Q41 L51
    Date: 2020
  2. By: Amigues, Jean-Pierre; Lafforgue, Gilles; Chakravorty, Ujjayant; Moreaux, Michel
    Abstract: In order to encourage substitution of fossil fuels by cleaner renewables, regulatory agencies have generally chosen between two types of renewable energy standards. They have either mandated a minimum volume of renewable energy as in the case of ethanol in transport fuels, and for electricity in Texas and Iowa. Or they have specified a minimum blend (share) of renewables in the energy supply mix as in California, Michigan and many other states. This paper uses a simple model to compare the dynamic effects of these two policies. We show that a volume mandate leads to a lower energy price, induces a greater subsidy on clean energy and a smaller fossil fuel tax than the blend mandate. The volume mandate also leads to larger cumulative renewable energy use over the time horizon. We illustrate the model with plausible parameter values and show that the two energy mandates lead to large differences in fossil fuel taxes and clean energy subsidies.
    Keywords: Renewable energy mandates; Fossil fuels; Energy transition; Subsidies; Carbon tax
    JEL: Q42 Q48 Q54
    Date: 2020–08
  3. By: Kayo MURAKAMI; Hideki SHIMADA; Yoshiaki USHIFUSA; Takanori IDA
    Abstract: This study investigates the different impacts of monetary and nonmonetary incentives on energy-saving behaviors using a field experiment conducted in Japan. We find that the average reduction in electricity consumption from rebate is 4%, while that from nudge is not significantly different from zero. Applying a novel machine learning method for causal inference (causal forest) to estimate heterogeneous treatment effects at the household level, we demonstrate that the nudge intervention’s treatment effects generate greater heterogeneity among households. These findings suggest that selective targeting for treatment increases the policy efficiency of monetary and nonmonetary interventions.
    Keywords: Causal Forest, Rebate,Nudge, Randomized Controlled Trial, Energy, Machine Learning
    JEL: D9 C93 Q4
    Date: 2020–09
  4. By: HINDRIKS Jean, (Université catholique de Louvain, CORE, Belgium); SERSE Valerio, (Université catholique de Louvain, CORE, Belgium)
    Abstract: In April 2014, the Belgian government reduced the VAT rate on the electricity price from 21% to 6%. In September 2015, however, this tax cut was repealed, and the VAT rate was reinstated to 21%. This paper investigates the impact of such temporary exogenous VAT reform on the Belgian electricity market. We study both the pass-through of the VAT reform to electricity prices and the effect of this (exogenous) price change on electricity consumption. We estimate the VAT pass-through by a difference-in-differences approach using business electricity prices (not subject to VAT) as a control group. To estimate the impact of the VAT change on demand, we perform an event study on the electricity flowed monthly over the grid at the network operator level. Our findings reveal that both the tax cut and the tax hike were entirely shifted to the electricity price (i.e., 100%). Exploiting different sources of price variation, our results reveal a price elasticity of residential demand for electricity between -0.09 and -0.17. Interestingly, we also find that consumption reacted quickly and symmetrically to the VAT cut and the subsequent VAT hike.
    Keywords: tax incidence, VAT reform, demand elasticity, electricity markets
    JEL: H21 H22 H23 Q41 Q48
    Date: 2020–02–11
  5. By: Henriques, David
    Abstract: The literature on access prices and investment has suggested that firms under-invest when subject to an access provision obligation combined with a fixed access price per consumer. In this paper, I study an access price per consumer for an innovative service such as super- fast broadband provided by a regulated firm that is a function of its geographical coverage (indexation approach). The indexation approach can enhance economic efficiency beyond what is achieved with a fixed access price under a set of standard assumptions. In particular, it can simultaneously induce the firms to set lower retail prices, lead to wider geographi- cal coverage of innovative services and higher social welfare level compared with a fixed access price. Moreover, in the model, the indexation may be used to achieve approximately the Ramsey outcome, or the first-best coverage level. I address how a regulator can set the access price indexation optimally, based on the coverage cost plus an incentive. I highlight the potential role of indexation as a tool to reduce the need for public subsidies and the associated tax distortions when compared with a fixed access price.
    Keywords: geographic coverage; innovation; investment incentives; price controls; Springer
    JEL: L43 L51 L96
    Date: 2020–08–27
  6. By: Fernando Giuliano (World Bank); Maria Ana Lugo (World Bank); Ariel Masut (YPF S. A); Jorge Puig (CEDLAS-IIE-FCE-UNLP)
    Abstract: We analyze the distributional effects of the reduction in energy subsidies in Argentina since 2016. As the policy reform also includes the introduction of a scheme to protect less well-off families (social tariff), we also review how well the targeting mechanism works. We apply traditional benefit-incidence analysis using household surveys and administrative data, focusing on residential subsidies to natural gas and electricity in the Buenos Aires Metropolitan Area. We find that the social tariff is relatively pro-poor, with significantly higher coverage among the poorest households. There are some exclusion errors in the low-income deciles and large inclusion errors in the medium- and high-income deciles. The distributive incidence of subsidies does not appear to have changed substantially. Energy subsidies in Argentina (lower in aggregate terms) continue to be, although progressive, pro-rich. The distributional effect is explained by the fact that generalized subsidies to all categories of consumption coexist with a relatively well targeted social tariff. Regarding energy budget shares, monthly spending on electricity has increased from 1.1 percent of total household income to 3.4 percent. Monthly spending on piped gas rose from 1.3 percent to 3.3 percent. These shares are in line with many other countries in the region. Naturally, there has been a convergence of tariffs toward service provision costs.
    JEL: H22 D31 D78 Q48
    Date: 2020–09
  7. By: Lisa Bagnoli; Salvador Bertomeu; Antonio Estache
    Abstract: This paper analyses the links between the ownership choices (i.e. public versus private) made by Latin and Central American countries for their electricity utilities and related basic social indicators at the expenditure quintile level (i.e. household access to electricity and energy poverty/affordability). From a multinomial logit model accounting for a wide range of controls, we find that energy poverty/affordability issues are more likely in countries with public operators but that these countries are also more likely to have better access rates. We also find that the creation of a separate regulatory agency is associated with better social outcomes when the operator is private than when it is public. These results have various interpretations, ranging from the illustration that better matching of ownership with other reforms is needed to get better social outcomes, to the possibility that the data reflects the effects of cream skimming by private operators preferring countries with lower poverty issues, leaving the socially challenging countries to public providers.
    JEL: D02 D47 L50 L94
    Date: 2020–09
  8. By: Boom, Anette (Department of Economics, Copenhagen Business School); Schwenen, Sebastian (Technical University of Munich, School of Management, and DIW Berlin (Germany))
    Abstract: We examine the effects of real-time pricing on welfare and consumer surplus in electricity markets. We model consumers on real-time pricing who purchase electricity on the wholesale market. A second group of consumers contracts with retailers and pays time-invariant retail prices. Electricity generating firms compete in supply functions. Increasing the number of consumers on real-time pricing increases welfare and consumer surplus of both types of consumers. Yet, risk averse consumers on traditional time-invariant retail prices are always better off. Collectively, our results point to a public good nature of demand response in power markets when consumers are risk-averse.
    Keywords: Electricity; Real-time pricing; Market power; Efficiency
    JEL: D42 D43 D44 L11 L12 L13
    Date: 2020–07–01
  9. By: Bård Harstad; Francesco Lancia; Alessia Russo
    Abstract: We characterize the optimal policy and policy instruments for self-enforcing treaties when countries invest in green technology before they pollute. If the discount factor is too small to support the first best, then both emissions and investments will be larger than in the first best, when technology is expensive. When technology is inexpensive, countries must instead limit or tax green investment in order to make future punishment credible. We also uncover a novel advantage of price regulation over quantity regulation, namely that when regulation is sufficiently flexible to permit firms to react to non-compliance in another country, the temptation to defect is reduced. The model is tractable and allows for multiple extensions.
    Keywords: climate change, environmental agreements, green technology, policy instruments, repeated games, compliance, self-enforcing treaties
    JEL: D86 F53 H87 Q54
    Date: 2020
  10. By: Florent Laroche (LAET - Laboratoire Aménagement Économie Transports - UL2 - Université Lumière - Lyon 2 - ENTPE - École Nationale des Travaux Publics de l'État - CNRS - Centre National de la Recherche Scientifique); Ayana Lamatkhanova
    Abstract: The paper explores the effect of competition on prices and frequencies for the Interurban rail market in Europe. Intramodal competition is assessed by the Herfindahl-Hirschman Index (HHI). Intermodal competition takes into account new types of service such as coach and carpooling services. The originality of the analysis stems from the method and database used. The results show that intra-modal competition has a significant impact on frequencies but not on economy class prices because of oligopolistic organizations (duopoly). In addition, the effects of intermodal competition are limited mainly because of considerable differences between services in terms of travel time, comfort and users' preferences.
    Keywords: Direct competition,Railway competition,Herfindhal-Hirschman index,Oligopolistic market,Regulation approach
    Date: 2020–09–04
  11. By: Di Foggia, Giacomo
    Abstract: Policies for steering energy efficiency projects have multiple implications. Among others: economic opportunity, decrease of greenhouse gas emissions, security of supply, technological development. One of the key new instruments foreseen to support energy efficiency improvements is the energy efficiency certificate (EEC). Focusing on the industrial business case, the objective of this study is twofold. First, the paper analyses and discuss the energy performance contract, second it shows how EECs concur in supporting the investment. Specifically, results suggest that thanks to this instrument the payback time would be around 20% below the baseline hypothesis
    Date: 2020–08–24
  12. By: Newbery, D.
    Abstract: Transport policy needs reform. Future Government investment and fiscal policy needs re-orienting to stimulate the economy after the Covid-19 lock-down. Prices used in project appraisal must include all external effects, committing to proper social cost-benefit analysis. In consequence, fuel duty rates need to be more than doubled as a prelude to proper road pricing. Transport investment needs to be increased even with proper road pricing and more allocated to walking and cycling, guided by benefit-cost ratios, following Eddington’s recommendations. The paper gives five reasons for raising fuel duty rates, more on diesel than petrol, and estimates the desired levels.
    Keywords: Transport policy, fuel taxes, road pricing, road investment
    JEL: D62 H23 R41 R48
    Date: 2020–09–03
  13. By: Ivaldi, Marc; Palikot, Emil
    Abstract: Using data collected from one of the most popular ridesharing platforms, we illustrate how mobility has changed after the exit from the Covid-19 induced confinement. We measure the impact of the Covid-19 outbreak on the level of mobility and the price of ridesharing. Finally, we show that the pandemic has exacerbated ethnic discrimination. Our results suggest that a decision-maker encouraging the use of ridesharing during the pandemic should account for the impact of the perceived health risks on ridesharing prices and should find ways to ensure fair access.
    Keywords: Ridesharing; digital mobility; price discrimination
    Date: 2020–08
  14. By: Calel, Raphael
    Abstract: One important motivation for creating cap-and-trade programs for carbon emissions is the expectation that they will stimulate much-needed low-carbon innovation. I construct a new panel of British firms to investigate this hypothesis, finding that the European carbon market has encouraged greater low-carbon patenting and R&D spending among regulated firms without necessarily driving short-term reductions in carbon intensity of output. This stands in contrast to past cap-and-trade programs, which have primarily spurred adoption of existing pollution control technologies, with little effect on innovation. I discuss how to reconcile these contrasting findings and implications for the future of carbon markets.
    JEL: D21 O32 O34 Q52 Q54 Q58
    Date: 2020–08–03
  15. By: Fu, Shihe; Viard, Brian; Zhang, Peng
    Abstract: The economic costs of trans-boundary pollution spillovers versus local effects is a necessary input in evaluating centralized versus decentralized environmental policies. Directly estimating these for air pollution is difficult because spillovers are high-frequency and vary with distance while economic outcomes are usually measured with low-frequency and local pollution is endogenous. We develop an approach to quantify local versus spillover effects as a flexible function of distance utilizing commonly-available pollution and weather data. To correct for the endogeneity of pollution, it uses a mixed two-stage least squares method that accommodates high-frequency (daily) pollution data and low-frequency (annual) outcome data. This avoids using annual pollution data which generally yields inefficient estimates. We apply the approach to estimate spillovers of particulate matter smaller than 10 micrograms (PM10) on manufacturing labor productivity in China. A one μg/m3 annual increase in PM10 locally reduces the average firm’s annual output by CNY 45,809 while the same increase in a city 50 kilometers away decreases it by CNY 16,248. The spillovers decline quickly to CNY 2,847 at 600 kilometers and then slowly to zero at about 1,000 kilometers. The results suggest the need for supra-provincial environmental policies or Coasian prices quantified under the approach.
    Keywords: Air pollution; spillovers; environmental costs and benefits, mixed two-stage least squares; regional coordination
    JEL: D62 Q51 Q53 R11
    Date: 2019–08–14

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