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on Regulation |
| By: | Puja Singhal |
| Abstract: | Effective attention to information may play a prominent role in consumer choice for energy-intensive services and it may simply be a function of receiving timely information when consumption takes place. This paper investigates whether and why the timing of utility bills leads to salience bias in heat energy consumption. In Germany, the 12-month billing period varies across buildings with a significant share of buildings receiving bills during the summer months, when the salience of heating costs is absent or low. I exploit this large-scale natural experiment in utility billing cycles at the building level to identify the salience effect of costs on energy consumption and the underlying heterogeneity in the average treatment effect. I find new evidence for consumer inattention to energy costs: consumers that are billed for heating during off-winter months demand more heat energy annually. Results suggest that households are paying attention to their heating costs in the first three months of the 12-month billing period. As a result, bills immediately before the winter heating season are most effective, allowing ample opportunity to adjust consumption. I show that salience bias in consumption is persistent and pervasive – affecting households in all regions and building/technology type. Engaging energy users with salient bills, not necessarily more frequent, has the potential to reduce energy consumption in the residential sector significantly. This paper further examines whether enduring differences in consumer inattention to energy costs had a long-run impact on thermal efficiency investments by building owners – with implications for the energy-efficiency gap. |
| Keywords: | Heating bills, natural experiment, cost salience, consumer inattention, energy consumption, energy efficiency |
| JEL: | D12 Q41 Q58 Q52 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1891&r=all |
| By: | Hintermayer, Martin (Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)) |
| Abstract: | Despite the reform of the European Emissions Trading System (EU ETS), discussions about complementing it with a carbon price floor (CPF) are ongoing. This paper analyzes the effect of a European CPF in the reformed EU ETS using a Hotelling model of the EU ETS, amended by the market stability reserve (MSR), and the cancellation mechanism. Two CPF designs are compared: (1) a buyback program and (2) a top-up tax. The buyback program sets a minimum price for the allowances from the implementation year onwards. After the announcement, firms anticipate the CPF, which immediately increases the carbon price to the discounted CPF level. Therefore, firms emit less and bank more allowances, leading to more intake into the MSR, and more cancellation of allowances. The top-up tax imposes a tax on emissions, which enhances the market price of allowances to the CPF level from the implementation year onwards. Firms increase their short-run emissions in anticipation of the upcoming tax. Only after the implementation year firms start to lower their emissions. Thus, the effect on aggregate cancellation is ambiguous. Despite being equivalent in a static setting, the design choice for the CPF matters in a dynamic context, such as the EU ETS. |
| Keywords: | Intertemporal Emission Trading; Carbon Price Floor; EU ETS |
| JEL: | H23 H32 Q58 |
| Date: | 2020–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:ris:ewikln:2020_003&r=all |
| By: | Gordon W. Leslie (Department of Economics, Monash University); David I. Stern (Arndt-Corden Department of Economics, Crawford School of Public Policy); Akshay Shanker (School of Economics, University of New South Wales); Michael T. Hogan (The Regulatory Assistance Project) |
| Abstract: | This article explores key market design issues to be addressed in future electricity markets dominated by intermittent renewable generation with near zero private marginal costs for generating electricity. Changing technology mixes will change market outcomes, but they do not change the fundamental economic principles behind market design. Market-clearing prices in such a market are not necessarily mostly zero even in an energy-only market, especially with grid scale storage, an active demand side of the market, and scarcity pricing. However, increasing intermittent generator penetration increases the importance for adequately pricing scarcity and all network constraints and services. Such pricing is required to deliver investment incentives for the right technologies to locate at the right locations to efficiently maintain a stable and reliable electrical network. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:een:ccepwp:2002&r=all |
| By: | Kaitila, Ville |
| Abstract: | Abstract In order to fight the climate change, the European Union and Finland as its member country are seeking carbon neutrality by 2050, Finland already by 2035. In this brief, we assess the development of Finnish greenhouse gas emissions (CO2 equivalent) in 2019–2024 based on Etla’s most recent macroeconomic and industry sector forecasts. Technological change that will cut greenhouse gas emissions is paramount for the efforts to reach carbon neutrality. We use three technological assumptions that describe how the emission intensity of value added may develop. Our baseline scenario, based on how value added will change in each industry combined with their average development in emission intensity over the past few years, shows that the aggregate emissions will decrease on average by about four per cent annually in 2019–2024. Compared to our previous forecast, we have now calculated the development of CO2 emissions in the electricity, gas and steam producing sector and the development of carbon sinks in a new way. However, this good development is not yet enough to reach the carbon neutrality target which requires a speed of decline in emissions of around six per cent annually. Consequently, technological change needs to accelerate considerably. The public sector can support the efforts to reach carbon neutrality by, among other things, R&D funding, removing harmful subsidies, introducing environmental taxes, and being active in the development of the EU’s emissions trading system. Carbon neutrality can also be taken into account in public procurement and infrastructure investments. |
| Keywords: | Economic forecast, CO2, Carbon neutrality, Emissions trading |
| JEL: | E17 O11 O30 O44 O47 |
| Date: | 2020–09–08 |
| URL: | http://d.repec.org/n?u=RePEc:rif:briefs:90&r=all |
| By: | Geoffrey Heal |
| Abstract: | I make three points relating to the transition from fossil fuels to non-carbon energy. One is that the economic cost of moving from fossil fuels to renewable energy in electricity generation is very low, and probably lower than many estimates of the economic benefits from this change. The second is that, if it were to move the economy away from fossil fuels and from oil in particular, a carbon tax would have to be much great than generally believed, in the range of $400 per ton CO2 or above. Finally, decarbonization of the economy implies electrification, the replacement of fossil fuels by electricity in for example space heating. Currently electricity is far too expensive for this to be politically realistic: this is because its price does not reflect its marginal cost but this plus a wide range of fixed costs that are recovered in the per kilowatt hour charge. If we are to electrify the economy then the price of electricity will need to be nearer to its marginal cost, which raises questions about the business models of utilities. |
| JEL: | Q42 Q54 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27766&r=all |
| By: | Thomas Longden (Crawford School of Public Policy, Australian National University); Frank Jotzo (Crawford School of Public Policy, Australian National University); Mousami Prasad (Crawford School of Public Policy, Australian National University); Richard Andrews (Crawford School of Public Policy, Australian National University) |
| Abstract: | A crucial question in the development of a hydrogen industry is whether green hydrogen, made using renewable energy, will be able to be produced at a cost that makes it attractive compared to hydrogen produced from fossil fuels. The main factors are the cost of electricity and the cost of electrolysers, together with capacity utilisation rates. Over recent years the cost of electricity from solar PV and wind have fallen dramatically, and further reductions are expected. Cost reductions are also being realised for electrolysers. In this note, we compile recent cost estimates and projections to provide plausible ranges for the production cost of green hydrogen. We find that the cost of green hydrogen could readily be at or below A$3/kg in the near future, and that the ‘stretch goal’ of A$2/kg mentioned in Australian strategy documents is likely to come into reach, possibly rapidly. |
| Date: | 2020–08 |
| URL: | http://d.repec.org/n?u=RePEc:een:ccepwp:2007&r=all |
| By: | Steve Cicala (University of Chicago - Harris School of Public Policy and NBER); Stephen P. Holland (University of North Carolina at Greensboro - Department of Economics and NBER); Erin T. Mansur (Dartmouth - Tuck School of Business and NBER); Nicholas Z. Muller (Carnegie Mellon University and NBER); Andrew J. Yates (University of North Carolina at Chapel Hill) |
| Abstract: | The COVID-19 pandemic resulted in stay-at-home policies and other social distancing behaviors in the United States in spring of 2020. This paper examines the impact that these actions had on emissions and expected health effects through reduced personal vehicle travel and electricity consumption. Using daily cell phone mobility data for each U.S. county, we find that vehicle travel dropped about 40% by mid-April across the nation. States that imposed stay-at-home policies before March 28 decreased travel slightly more than other states, but travel in all states decreased significantly. Using data on hourly electricity consumption by electricity region (e.g., balancing authority), we find that electricity consumption fell about six percent on average by mid-April with substantial heterogeneity. Given these decreases in travel and electricity use, we estimate the county-level expected improvements in air quality, and therefore expected declines in mortality. Overall, we estimate that, for a month of social distancing, the expected premature deaths due to air pollution from personal vehicle travel and electricity consumption declined by approximately 360 deaths, or about 25% of the baseline 1500 deaths. In addition, we estimate that CO2 emissions from these sources fell by 46 million metric tons (a reduction of approximately 19%) over the same time frame. |
| Keywords: | Air pollution, COVID-19, Social Distancing |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:bfi:wpaper:2020-61&r=all |
| By: | Soheil Ghili (Cowles Foundation & School of Management, Yale University); Vineet Kumar (School of Management, Yale University) |
| Abstract: | This paper studies the e ects of economies of density in transportation markets, focusing on ridesharing. Our theoretical model predicts that (i) economies of density skew the supply of drivers away from less dense regions, (ii) the skew will be more pronounced for smaller platforms, and (iii) rideshare platforms do not nd this skew ecient and thus use prices and wages to mitigate (but not eliminate) it. We then develop a general empirical strategy with simple implementation and limited data requirements to test for spatial skew of supply from demand. Applying our method to ride-level, multi-platform data from New York City (NYC), we indeed nd evidence for a skew of supply toward busier areas, especially for smaller platforms. We discuss the implications of our analysis for business strategy (e.g., surge pricing) and public policy (e.g., consequences of breaking up or downsizing a rideshare platform). |
| Keywords: | Spatial Markets, Transportation, Economies of Density, Market Thickness, Ridesharing |
| JEL: | L13 R41 D62 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2219r&r=all |
| By: | Christian von Hirschhausen; Claudia Kemfert; Fabian Praeger |
| Abstract: | This paper discusses the potential role of fossil natural gas (and other gases) in the process of the energy transformation in Europe on its way to complete decarbonization. Mainstream conventional wisdom has it that natural gas, perhaps in combination with other gases, should maintain an important role in the energy mix, first, as a “bridge fuel”, and then through a gradual transition toward decarbonized gases. This is most comprehensively rolled out in three consecutive discussion papers by Jonathan Stern from the Oxford Institute for Energy Studies (2017b, 2017a, 2019). Based on an in- depth assessment of the ambitious climate targets of the EU and the subsequent need for far-reaching decarbonization, as well as on results from energy system modeling, a contrasting result emerges, where the disappearance of fossil natural gas and its corresponding infrastructure is the next logical step of the transformation process in Europe. The lack of an economic perspective for nuclear power and the absence of a plausible deployment of large-scale carbon-dioxide removal technologies (CDR) imply that natural gas has no “sweet spot” any longer in the decarbonization process. In other words: Fossil natural gas is no longer part of the solution to the challenge of climate change, but has become part of the problem. Over the last years, the phasing out of natural gas in Europe has already started, and will continue until its complete phase-out, most likely in the 2040s, i.e. only two decades from now. The decline of natural gas in Europe has implications for the short- and longer-term aggregate and sectoral energy mix, but also for the future of the lumpy infrastructure, that has been developed over the last decades for a growing market. Today, investments into natural gas infrastructure are likely to produce stranded assets, as we show in three concrete cases: The € 10 bn. investment into the North Stream 2 pipeline are not necessary to assure European supply security, nor to make a return on investment; projects of new LNG terminals on the shore of the German North Sea (Brunsbuettel, Stade, Wilhelmshaven) lack a business case; and new natural gas power plants are likely to be unprofitable. The paper proposes to replace the dominant narrative (“natural gas in decarbonizing European energy markets“) with what we consider a more coherent narrative in the context of decarbonization: Fossil natural gas exit. |
| Keywords: | Europe, decarbonization, fossil natural gas, energy gases |
| JEL: | Q48 Q54 L52 L95 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1892&r=all |
| By: | Baikowski, Martin; Koesler, Simon |
| Abstract: | Changes in energy consumption behaviour of households are recognised as a main contributor to reduced energy demand in developed countries. We investigate the economy-wide impacts of a more efficient electricity consumption behaviour in the presence of demand rigidities and consumption habits. Our findings demonstrate that in the context of energy efficiency improvements in households, taking into account rebound effects is vital, as rebound effects can drastically reduce expected energy savings. We further point out that policies aimed at reducing household energy consumption should always take demand rigidities and consumption habits into account, otherwise rebound effects could be significantly underestimated. |
| Keywords: | rebound,demand rigidities,energy service consumption,consumption habits |
| JEL: | D13 D58 Q41 Q43 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cawmdp:120&r=all |
| By: | Maximilian Schäfer; Geza Sapi |
| Abstract: | The rise of dominant firms in data driven industries is often credited to their alleged data advantage. Empirical evidence lending support to this conjecture is surprisingly scarce. In this paper we document that data as an input into machine learning tasks display features that support the claim of data being a source of market power. We study how data on keywords improve the search result quality on Yahoo!. Search result quality increases when more users search a keyword. In addition to this direct network effect caused by more users, we observe a novel externality that is caused by the amount of data that the search engine collects on the particular users. More data on the personal search histories of the users reinforce the direct network effect stemming from the number of users searching the same keyword. Our findings imply that a search engine with access to longer user histories may improve the quality of its search results faster than an otherwise equally efficient rival with the same size of user base but access to shorter user histories. |
| Keywords: | Competition, network effects, search engines, Big Data |
| JEL: | L12 L41 L81 L86 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:diw:diwwpp:dp1894&r=all |
| By: | Robert I. Harris; William A. Pizer |
| Abstract: | A sizeable number of papers beginning with Roberts and Spence (1976) have studied the use of price floors and ceilings (or “collars”) to manage prices in tradable permit markets. In contrast, economists have only recently begun examining polices to manage quantities under a pollution tax. Importantly, it can be difficult to know how to evaluate these policies, as papers dating back to Pizer (2002) suggest welfare is maximized by not focusing on quantities in the first place. In this paper, we propose an objective function to evaluate these alternative “carbon tax policies to meet an emission target.” The objective function includes a discrete jump in marginal emission consequences at the target, where the discontinuity can be interpreted as a true benefit measure or a necessary political constraint. We parameterize these emission consequences using recent legislative proposals, coupling this function with mitigation cost estimates to define the complete objective. This objective identifies the first-best tax policy design, one that requires relatively complex adjustments to mimic a tradable permit system. Turning to simpler, practical rules, we find that such rules achieve much of the difference in expected net benefits between an ordinary, exogenous tax and the first-best tax policy design. However, the ranking among simple rules depends on the interpretation of the higher, above-target emission penalty as a political constraint or a true benefit measure. We find that making these views explicit could facilitate billions of dollars per year in welfare gains. |
| JEL: | H23 Q54 Q58 |
| Date: | 2020–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27781&r=all |
| By: | Rohan Best (Department of Economics, Macquarie University); Paul J Burke (Crawford School of Public Policy, Australian National University) |
| Abstract: | Energy mix persistence is a defining characteristic of energy systems, for reasons including the long-lived nature of energy infrastructure and the role of local endowments. This persistence is evident in current energy-type use being strongly influenced by past use. Our analysis uses data for eight energy types and a large sample of countries, finding varying degrees of energy mix persistence. We also find evidence that carbon pricing appears to have played a key role in tilting energy mixes from coal toward renewable energy. Our estimates provide empirical support to policymakers seeking to implement carbon pricing to transition their energy systems in a lower-carbon direction. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:een:ccepwp:2001&r=all |
| By: | Comincioli, Nicola; Vergalli, Sergio |
| Abstract: | Among the wide variety of policy options adopted worldwide to control carbon emissions, one of the most environmentally effective and economically efficient is represented by carbon tax, that aims to recoup the damage arising from polluting production processes. In this paper, we focus on the Australian Carbon Pricing Mechanism (CPM) and on the effects that its introduction had on the electricity market. The most relevant effect is the reduction of the level of electricity price’s volatility. This effect has been investigated after having removed, from electricity data time series, the periodic behavior, through a multiple linear regression. Then, to study volatility dynamics, we fit a two-states Markov-switching model to represent a high-volatility and a low-volatility states of the world. This model highlighted that in both states the level of volatility is lower and that the persistence of the second state is increased by the presence of the CPM. This result is particularly important in investment evaluation: knowing the different dynamics of price volatility in presence of a carbon tax or not, can provide crucial information in investment decision and its timing. |
| Keywords: | Environmental Economics and Policy |
| Date: | 2020–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemgc:305205&r=all |
| By: | Liang, Yuanning; Rudik, Ivan (Cornell University); Zou, Eric; Johnston, Alison; Rodewald, Amanda; Kling, Catherine |
| Abstract: | Massive wildlife losses over the past 50 years have brought new urgency to identifying both the drivers of population decline and potential solutions. We provide the first large-scale evidence that air pollution, specifically ozone, is associated with declines in bird abundance in the United States. We show that an air pollution regulation limiting ozone precursors emissions has delivered substantial benefits to bird conservation. Our results imply that air quality improvements over the past four decades have stemmed the decline in bird populations, averting the loss of 1.5 billion birds, approximately 20 percent of current totals. Our results highlight that in addition to protecting human health, air pollution regulations have previously unrecognized and unquantified conservation co-benefits. |
| Date: | 2020–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:osf:socarx:74ujt&r=all |