nep-reg New Economics Papers
on Regulation
Issue of 2020‒11‒02
eighteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Quantifying the effect of regulated volumetric electricity tariffs on residential PV adoption under net metering scheme By Bruno MORENO RODRIGO DE FREITAS
  2. From fundamentals to financial assets: the evolution of understanding price formation in the EU ETS By Friedrich, Marina; Mauer, Eva-Maria; Pahle, Michael; Tietjen, Oliver
  3. Designing an EU Intervention Standard for Digital Platforms By Peter Alexiadis; Alexandre de Streel
  4. Kill Bill or Tax: An Analysis of Alternative CO2 Price Floor Options for EU Member States By Christoph Böhringer; Carolyn Fischer
  5. Factors affecting renters’ electricity use: more than split incentives By Rohan Best; Paul J. Burke; Shuhei Nishitateno
  6. Why Do Some Transit Agencies Form Shared-Use Mobility Partnerships while Others Do Not? By Pike, Susan PhD; Kazemian, Sara
  7. Incentive regulation of electricity networks under large penetration of distributed energy resources – selected issues By Gert Brunekreeft; Julia Kusznir; Roland Meyer; Madoka Sawabe; Toru Hattori
  8. Experience Rates of Low-Carbon Domestic Heating Technologies in the United Kingdom By Renaldi, Renaldi; Hall, Richard; Jamasb, Tooraj; Roskilly, Anthony P.
  9. Effect of Public Procurement Regulation on Competition and Cost-Effectiveness By Bedri Kamil Onur Tas
  10. Cost-efficient transition to clean energy transportation services By Comello, Stephen; Glenk, Gunther; Reichelstein, Stefan
  11. How does Climate Change Affect the Transition of Power Systems: the Case of Germany By Golub, Alexander; Govorukha, Kristina; Mayer, Philip; Rübbelke, Dirk
  12. Congestion in highways when tolls and railroads matter: Evidence from European cities By Miquel-Àngel Garcia-López; Ilias Pasidis; Elisabet Viladecans-Marsal
  13. Effects of rescaling the EU energy label on household preferences for top-rated appliances By Faure, Corinne; Guetlein, Marie-Charlotte; Schleich, Joachim
  14. Rules vs. Discretion in Cap-and-Trade Programs: Evidence from the EU Emission Trading System By Marina Friedrich; Sébastien Fries; Michael Pahle; Ottmar Edenhofer
  15. Does access to electricity affect poverty? Evidence from Côte d'Ivoire By Arouna Diallo; Richard Kouame Moussa
  16. Are Consumers Abandoning Diesel Automobiles because of Contrasting Diesel Policies? Evidence from the Korean Automobile Market By Yoo, Sunbin; Koh, Kyung Woong; Yoshida, Yoshikuni
  17. Persuasion, Spillovers, and Government Interventions By Li, Cheng; Xiao, Yancheng
  18. Market Investigations for Digital Platforms: Panacea or Complement? By Amelia Fletcher

    Abstract: Among the major challenges for the power systems of the future, one may find the arise of a new approach of electricity production - the Distributed Generation (DG) systems - and photovoltaics (PV) is the main technology for this new approach. In this scenario, a new electricity market agent appeared - the prosumer - consumers that can also produce their own energy. The retail price is one of the main factors that encourages PV systems adoption under a net metering scheme. The present work shows an investigation on the influence of regulated electricity tariffs as volumetric charges structure on the residential DG PV systems adoption in a developing country context. I use a panel data from 2013-2017 with 5570 municipalities in Brazil, having as response variable the number of new PV installations and as explanatory variable the electricity tariffs among 105 different distribution companies. The results imply that for each one BRL cent of tariff increase, there will be an expansion of about 5.3% in new residential PV projects in the following year.
    Keywords: distributed generation, prosumer, residential PV adoption, net metering, volumetric electricity tariffs, panel data
    Date: 2020–10
  2. By: Friedrich, Marina; Mauer, Eva-Maria; Pahle, Michael; Tietjen, Oliver
    Abstract: Price formation in the EU Emission Trading System (EU ETS) has persistently puzzled economists and policy makers. In recent years, the empirical literature investigating this topic has expanded considerably, but a synthesis of what could be learned about price formation as a whole including the last wave of research is still missing. To fill this gap, we review the empirical literature structured along three categories of price drivers and related econometric methods. For better guidance of the reader, we draw on a simple theoretical model of price formation that we subsequently extend to connect the three different strands of literature: demand-side fundamentals, regulatory intervention and finance. In particular the insights from the second and third strand challenge the widespread view that allowance markets primarily reflect marginal abatement costs. Accordingly, the next wave of research should focus on shedding light on the complex interplay of compliance, regulatory uncertainty and financial trading motives.
    Keywords: emission trading,EU ETS,price formation,literature review
    JEL: Q48 Q50 Q56 Q58
    Date: 2020
  3. By: Peter Alexiadis; Alexandre de Streel
    Abstract: A consensus is emerging around the world about the need for policymakers to address certain characteristics and competitive tendencies that are generated by digital platforms or digital ecosystems, with a view to reforming the public policy instruments currently in place so that they are fit for the digital age. The paper starts by reviewing the relevant precedents under EU competition law and economic regulation upon which this reform could be based. The paper then puts forward recommendations to adapt competition rules, in particular as regards the determination of market power (e.g., by better taking into account the effects of ecosystems, the impact of potential competition and the role of innovation) and the application of theories of harm (i.e. by focusing on leveraging and envelopment behaviour, access to key innovation capabilities, discrimination and self-preferencing and the violation of normative regulatory principles). The paper then proceeds to propose a cumulative 'three criteria test' to determine the types of digital platforms upon which competition rules, and possibly complementary regulation, should focus. These three criteria require an assessment of: (i) the existence of market structures which are highly concentrated and non-contestable; (ii) the presence of digital gatekeepers which act as unavoidable trading partners; (iii) and, for the purposes of ex ante regulation, the lack of effectiveness of competition rules to address the identified problems in the market. The paper also considers the types of remedies that could be imposed on those identified digital platforms, including: interoperability and access to key innovation capabilities such as data; the prohibition of anti-competitive discrimination; and the facilitation of consumer switching. Given the rapid evolution of technology and market uncertainty, consideration should be given as to whether these remedies should be imposed in a participatory manner with the industry stakeholders directly affected by the measures. Finally, the paper deals with a number of procedural and institutional issues raised by the adoption of such a legal standard, proposing to adapt existing antitrust guidelines, to extend the power of DG Competition to conduct fully fledged market investigations (as is the case in the UK and Australia) and possibly to work closely with National Regulatory Agencies, coordination with whom at EU level arguably needs to be strengthened.
    Keywords: Digital markets, Online Platforms, Antitrust, Economic Regulation, European Union, Regulation
    Date: 2020–02
  4. By: Christoph Böhringer; Carolyn Fischer
    Abstract: Several EU member states are exploring options for setting minimum domestic carbon prices within the EU Emission Trading System (ETS). First, a “TAX” policy would introduce a carbon tax equal to the difference between the prevailing ETS price and the targeted minimum price. Second, a national auction reserve price would “KILL” allowances by invalidating them until the ETS price equalled the national minimum price. Third, a government could require domestic overcompliance and “BILL” covered entities for extra allowances per ton of emissions, thereby increasing demand for allowances and pulling up the ETS price. We explore the implications of these policy options on national and ETS-wide carbon prices, revenues from emissions allowances, emissions, and economic welfare. We find that a national government’s preferred unilateral policy will depend on the extent to which it values the fiscal benefits of revenues, which favor TAX or to a lesser degree BILL, versus climate benefits, which favor KILL and also BILL, particularly for jurisdictions with more emissions to leverage for overcompliance. Our analysis can be generalized to other multilateral cap-and-trade systems where participants pursue more stringent internal emission pricing through unilateral policies.
    Keywords: CO2 price floor, emissions trading, carbon tax
    JEL: H23 Q58 D62
    Date: 2020
  5. By: Rohan Best; Paul J. Burke; Shuhei Nishitateno
    Abstract: This paper uses data from the 2015 Residential Energy Consumption Survey to explore the extent to which renters’ electricity use in the United States exceeds that of otherwise similar non-renters. Renting households are found to use approximately 9% more electricity than non-renters when controlling for location, socioeconomic, and many appliance-quantity controls. There are multiple factors that explain this extra electricity use, including inferior energy efficiency of appliances, behavioural factors, differences in bill payment responsibilities, and additional reliance by renters on electric space and water heaters. The paper finds that none of these factors are dominant. The phenomenon of renters’ (conditionally) higher electricity use is thus best understood as one that emerges from multiple sources.
    Keywords: Split incentives, rent, electricity consumption, efficiency, household survey, United States
    Date: 2020–09
  6. By: Pike, Susan PhD; Kazemian, Sara
    Abstract: Ridehail services such as Uber and Lyft present new, flexible travel options. Integrating these services with existing public transit could reduce costs, facilitate more transit use, and improve access. To realize these benefits, a growing number of transit agencies are exploring partnerships with ridehail and other shared-use mobility companies, such as bikesharing and carsharing services. Under such partnerships transit agencies typically subsidize shareduse mobility services for passengers connecting to transit stations or traveling when transit service is limited or unavailable. If successful, these partnerships could serve as part of a new model of environmentally sustainable, costeffective, and equitable public transportation. However, only a few jurisdictions have implemented successful partnerships. Transit agencies that have not pursued these partnerships have expressed concerns about cost, liability, regulatory issues, and data sharing. Little is known about what prompts some transit providers to pursue these partnerships while others do not. Researchers at UC Davis surveyed 37 transit agencies and interviewed seven transit agency professionals over two years to better understand why transit agencies pursue shared-use mobility partnerships, the factors that influence partnership formation, and barriers that prevent or slow the formation of partnerships.
    Keywords: Social and Behavioral Sciences
    Date: 2020–10–23
  7. By: Gert Brunekreeft; Julia Kusznir; Roland Meyer; Madoka Sawabe; Toru Hattori
    Abstract: The rapid growth of Distributed Energy Resources (DER) and their integration into network presents currently the greatest challenges for many network operators worldwide in terms of network stability and power quality. To meet these challenges not only huge investment in grid expansion and smart grid technologies is required, but also the network regulation needs to adapt from cost efficiency towards investment and innovation. We analyze the recent experiences with the regulatory framework in several countries facing significant challenges of large penetration of DER. We discuss several selected regulatory issues that are important for promoting needed investment while ensuring cost efficiency, such as the length of regulatory period, X-factor, and allowed rate of return. We conclude that in the era of smart grids, incentive regulation requires a long-term perspective and needs to address the regulatory risks and uncertainties related to investment into grid expansion and smart grid technologies. To do so, incentive regulation should be supplemented by more innovative, investment-friendly regulatory measures. Additional supplementary mechanisms such as output-based regulation would be useful to achieve the regulatory goals and develop fully functional and consumer-oriented smart grid, though details for their implementation still have to be worked out.
    Keywords: Capex-bias, Opex-risk, electric utilities, regulation
    JEL: L51 L94
    Date: 2020–03
  8. By: Renaldi, Renaldi (Department of Engineering Science, University of Oxford); Hall, Richard (Energy Transitions Ltd.); Jamasb, Tooraj (Department of Economics, Copenhagen Business School); Roskilly, Anthony P. (Department of Engineering, Durham University)
    Abstract: This paper presents the experience curves of low-carbon domestic heating technologies in the United Kingdom between 2010 and 2019. The deployment of these technologies has been acknowledged as one of the main actions toward decarbonising the heating sector. In the UK, several deployment oriented policies have been implemented, such as the Renewable Heat Incentive (RHI). In this study, we focus on the following domestic heating technologies: air-source heat pumps, ground-source heat pumps, solar thermal collectors, and biomass boilers. Condensing combination gas boilers are also included to act as the baseline/incumbent technology. Using UK installation cost data for 2010 to 2019, we found that low-carbon heating technologies had experience rates of; air source heat pumps -2.3± 5%, ground source heat pumps -0.8±4%, biomass boilers 0.1±2%, and solar thermal 13±5%, all significantly lower than the re-ported learning rates of similar technologies in the literature. Furthermore, we found that gas boilers have reached the floor price at approximately £30/kW. The resulting experience rates can be used in energy economics models and to inform policymakers in developing further deployment programs.
    Keywords: Experience curves; Learning curves; Experience rates; Low-carbon heating; Heat decarbonisation
    JEL: O33 P18 Q55
    Date: 2020–10–05
  9. By: Bedri Kamil Onur Tas
    Abstract: This study empirically investigates the impact of public procurement regulation quality on the competition for tenders and the cost-effectiveness of awarded contracts, by employing the World Bank’s Benchmarking Public Procurement and EuroPAM Public Procurement quality scores. Using extensive data on public procurement in the European Economic Area, Switzerland, and Macedonia, the analysis in this paper shows that higher quality public procurement regulatory regimes are associated with higher levels of competition and cost-effectiveness. Improved regulation quality significantly increases the number of bidders and the probability that the procurement price is lower than the estimated cost.
    Keywords: Public Procurement, Regulation, Competition
    JEL: H57 L51 O52
    Date: 2020–05
  10. By: Comello, Stephen; Glenk, Gunther; Reichelstein, Stefan
    Abstract: Comprehensive global decarbonization will require that transportation services cease to rely on fossil fuels. Here we develop a generic life-cycle cost model to address two closely related questions central to the emergence of sustainable transportation: (i) the utilization rates (hours of operation) that rank-order alternative drivetrains in terms of their cost, and (ii) the cost-efficient share of clean energy drivetrains in a vehicle fleet of competing drivetrains. Calibrating our model framework in the context of urban transit buses, we examine how the comparison between diesel and battery-electric buses varies with the specifics of the duty cycle (route). We find that even for less favorable duty cycles, battery-electric buses will entail lower life-cycle costs once utilization rates exceed 20% of the annual hours. Yet, the current economics of that particular application still calls for a one-third share of diesel drivetrains in a cost-efficient fleet.
    Keywords: clean energy vehicles,transportation services,life-cycle cost,fleet optimization
    Date: 2020
  11. By: Golub, Alexander; Govorukha, Kristina; Mayer, Philip; Rübbelke, Dirk
    Abstract: The effects of extreme weather events, such as heat waves and droughts are taken into account in both global and European policies. Accordingly, the protection of critical infrastructures and in particular, the resilience of the energy sector was the subject of intense research. There are regional differences in the degree of exposure to extreme events. In Northern Europe, their intensity has increased dramatically within a decade. In our analysis we identify emerging risks of extreme weather events, in particular, droughts and high temperatures, for the German power sector. Furthermore, we consider how European policy addressed these severe risks. Our analysis is based on extensive datasets covering temperature and drought data for the last 40 years. We find evidence of a higher frequency of power plants outages as a consequence of droughts and high temperatures. We investigate increases in the wholesale electricity price and price volatility and develop a capacity-adjusted drought index. The results are used to assess the monetary loss of power plant outages due to heatwaves and droughts. We stress that increasing frequencies of such extreme weather events will aggravate the observed problem, especially with respect to the transition of the power sector.
    Keywords: Environmental Economics and Policy, Resource /Energy Economics and Policy
    Date: 2020–10–23
  12. By: Miquel-Àngel Garcia-López (Department of Applied Economics, Universidad Autónoma de Barcelona, 08193, Bellaterra, Spain); Ilias Pasidis (Barcelona Institute of Economics (IEB), Universidad de Barcelona 08034, Barcelona, Spain); Elisabet Viladecans-Marsal (Department of Economics, Universidad de Barcelona 08034, Barcelona, Spain)
    Abstract: Using data from the 545 largest European cities, we study whether the expansion of their highway capacity provides a solution to the problem of traffic congestion. Our results confirm that in the long run, and in line with the ’fundamental law of highway congestion’, the expansion in cities of lane kilometers causes an increase in vehicle traffic that does not solve urban congestion. We disentangle the increase in traffic due to the increases in coverage and in capacity. We further introduce road pricing and public transit policies in order to test whether they moderate congestion. Our findings confirm that the induced demand is considerably smaller in cities with road pricing schemes, and that congestion decreases with the expansion of public transportation.
    Keywords: congestion, highways, Europe, cities
    JEL: R41 R48
    Date: 2020–10
  13. By: Faure, Corinne; Guetlein, Marie-Charlotte; Schleich, Joachim
    Abstract: The European Union has decided to replace its current A+++ to D labelling scheme for cold appliances with a rescaled A to G labelling scheme. Employing a demographically representative discrete choice experiment on refrigerator adoption using an online survey among more than 1000 households in Germa-ny, this paper explores the effects of the rescaled scheme compared to the old scheme on the stated uptake of top-rated refrigerators. Since in practice both schemes will be shown for a transitory period, the paper also analyses the ef-fects of displaying both labels simultaneously. The findings from estimating a mixed logit model suggest that showing the rescaled A to G label alone signifi-cantly increases valuation of top-rated refrigerators compared to showing the current A+++ to D label alone. In comparison, when the A+++ to D and the re-scaled A to G schemes are shown simultaneously, no benefits of introducing the rescaled label are found. Thus, policymakers should strive to enforce the application of the rescaled label scheme as quickly as possible and to shorten transitory periods where both labels are shown simultaneously.
    Keywords: energy efficiency,energy label,appliances,choice experiment
    Date: 2020
  14. By: Marina Friedrich; Sébastien Fries; Michael Pahle; Ottmar Edenhofer
    Abstract: Long-term commitment is crucial for the dynamic efficiency of intertemporal cap-and-trade programs. Discretionary interventions in such programs could destabilize the market, and necessitate subsequent corrective interventions that instigate regulatory instability (Kydland and Prescott, 1977). In this work, we provide evidence for this claim from the EU’s cap-and-trade program (EU-ETS). We ground our analysis in the theoretical finance literature, and apply a mixed method approach (time-varying regression, bubble detection, crash-odds modelling). We find that the recent EU-ETS reform triggered market participants into speculation, which likely led to an overreaction that destabilized the market. We discuss how the smokescreen politics behind the reform, which manifested itself in complex rules, was crucial for this outcome. We conclude that rules only ensure long-term commitment when their impact on prices is predictable.
    Keywords: rules vs. discretion, cap-and-trade, overreaction, allowance pricing
    JEL: Q48 Q50 Q56
    Date: 2020
  15. By: Arouna Diallo (CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Richard Kouame Moussa (ENSEA - Ecole nationale supérieure de statistique et d'économie appliquée [Abidjan])
    Abstract: This paper investigates the effect of household's access to electricity on poverty in Côte d'Ivoire and how it has varied over the last two decades. The study shows a positive and significant effect of access to electricity on household consumption per capita. Access to electricity increases household consumption per capita by 5.2 to 23.3 percent. The results also highlight that the lower the regional rate of access to electricity, the higher the regional poverty rate. Policy should be designed to expand the access to electricity. Promoting renewable energy, improving the institutional framework, spreading the access to Solar Home System in off-grid areas and implementing incentive measures such as the reduction of customs and tax taxes on renewable energy equipment are measures that might help to combat energy and monetary poverty.
    Date: 2020–09–24
  16. By: Yoo, Sunbin; Koh, Kyung Woong; Yoshida, Yoshikuni
    Abstract: We investigate whether the contrasting set of transportation policies in Korea---reductions in fuel taxes and increases in diesel automobile prices---has decreased emissions. Using a random-coefficient discrete choice model and hypothetical policy sets, we estimate the automobile demand of consumers, the market share of cars by fuel type, and total emissions, assuming that consumer preferences for driving costs change over time. Then, we separately analyze the effect of each policy set on automobile sales and emissions, particularly carbon dioxide, nitrogen oxide, and particulate matter. Our analyses reveal that Korean consumers have become more sensitive toward fuel costs over time and that the emission consequences of Korean policies depend on consumer preferences.
    Keywords: Discrete Choice, Demand Estimation, Emissions, Transportation, Fuel Cost
    JEL: D1 D12 R4 R41
    Date: 2020–10
  17. By: Li, Cheng; Xiao, Yancheng
    Abstract: We develop a model of Bayesian persuasion with spillovers to investigate the impact of information production on optimal policy design. A sender produces information to persuade a receiver to take an action with external effects, and the government implements corrective subsidies and taxes to maximize social welfare. Subsidies to the sender’s preferred action incentivize her to produce less information, while taxes motivating her to produce more. Such an informational effect impacts the receiver’s decision and social welfare. We show that the optimal corrective subsidies and taxes may be different from the Pigouvian level. Most notably, the optimal policy is no government intervention when the spillover is positive and small.
    Keywords: persuasion; spillover effects; externalities; Pigouvian taxes; subsidies; social welfare
    JEL: C72 D8 H21 H23
    Date: 2020
  18. By: Amelia Fletcher (Centre for Competition Policy and Norwich Business School, University of East Anglia)
    Abstract: There is a growing international consensus that standard competition law is inadequate for addressing the panoply of competition problems arising in digital platform markets. Alongside a proposal for ex ante regulation in this arena, the European Commission is considering the introduction of a ‘New Competition Tool’ which is broadly modelled on the UK Market Investigation instrument. This paper abstracts from the specifics of the EU situation and considers the pros and cons of market investigations in the context of the UK regime. It concludes that the tool is a valuable addition to the standard competition law toolkit, and that this is likely to be true also at EU level, both for digital platforms and more widely. However, because the tool is potentially so powerful and flexible, it merits strong procedural checks and balances, to guard against confirmation bias or politicisation. The tool also has important limitations and thus should not be viewed as a full solution to the issues raised by digital platforms, but rather as a valuable complementary tool alongside new ex ante regulation. Interoperability is discussed as one example where the tools could valuably be used alongside each other
    Date: 2020–10–01

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.
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