nep-reg New Economics Papers
on Regulation
Issue of 2020‒11‒09
twelve papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Are carbon prices redundant in the 2030 EU climate and energy policy package? By Finn Roar Aune; Rolf Golombek
  2. How to spend it: A proposal for a European Covid-19 recovery programme By Jérôme Creel; Mario Holzner; Francesco Saraceno; Andrew Watt; Jérôme Wittwer
  3. Energy Efficiency, District Heating and Waste Management By Egüez, Alejandro
  4. Effect of Public Procurement Regulation on Competition and Cost-Effectiveness By Bedri Kamil Onur Tas
  5. Intrafirm Leakage By Felix Samy Soliman
  6. Short-term impacts of carbon offsetting on emissions trading schemes: empirical insights from the EU experience By Djamel KIRAT; Claire GAVARD
  7. Climate targets, executive compensation, and corporate strategy By Ritz, R.
  8. Incentivized Mergers and Cost Effciency: Evidence from the Electricity Distribution Industry By Robert Clark; Mario Samano
  9. Ownership and district heating prices: The case of an unregulated natural monopoly By Egüez, Alejandro
  10. Inducing Effort Through Grades By David Rodina; John Farragut
  11. The Elasticity of Substitution between Clean and Dirty Energy with Technological Bias By Ara Jo
  12. Efficiency Wages, Unemployment, and Environmental Policy By Garth Heutel; Xin Zhang

  1. By: Finn Roar Aune (Statistics Norway); Rolf Golombek
    Abstract: In 2018, an agreement between the key EU institutions – the Commission, the European Parliament, and the European Council – was reached after a long-lasting discourse over the 2030 EU climate and energy policy package. This paper offers a comprehensive assessment of the EU package, with its three main targets: lower greenhouse gas emissions, higher renewable share in final energy consumption, and improved energy efficiency. We find that the renewable and energy efficiency targets have been set so high that the derived emissions reduction (50 percent) exceeds the EU climate target (40 percent). Hence, there is no need for an EU climate policy, for example, to use carbon prices to reach the EU climate goals. It is, however, not cost-efficient to achieve the climate target by imposing the three EU targets. We demonstrate that a cost-efficient policy that obtains a 50 percent GHG emissions reduction would increase annual welfare (relative to the Reference scenario) by an amount corresponding to 0.6 percent of GDP in Europe.
    Keywords: climate policy; renewables; energy efficiency; energy modeling; EU 2030
    JEL: Q28 Q41 Q48 Q54
    Date: 2020–10
  2. By: Jérôme Creel (Observatoire français des conjonctures économiques); Mario Holzner; Francesco Saraceno (Observatoire français des conjonctures économiques); Andrew Watt (Macroeconomic Policy Institute (IMK)); Jérôme Wittwer (Bordeaux population health (BPH))
    Abstract: ■The Recovery Fund recently proposed by the EU Commission marks a sea-change in European integration. Yet it will not be enough to meet the challenges Europe faces. There has been much public debate about financing, but little about the sort of concrete projects that the EU should be putting public money into.■Here we propose a 10-year, €2tn investment programme focusing on public health, transport infrastructure and energy/decarbonisation. ■It consists of two pillars. In a national pillar Member States — broadly as in theCommission proposal — would be allocated €500bn. Resources should be focused on the hardest-hit countries and front-loaded: we suggest over a three-year horizon.■The bulk of the money —€1.5tn — would be devoted to finance genuinely European projects, where there is an EU value added. We describe a series of flagship initiatives that the EU could launch in the fields of public health, transport infrastructure and energy/decarbonisation. ■We call for a strengthened EU public health agency that invests in health-staff skillsand then facilitates their flexible deployment in emergencies, and is tasked withensuring supplies of vital medicines (Health4EU). ■We present costed proposals for two ambitious transport initiatives: a dedicated European high-speed rail network, the Ultra-Rapid-Train, with four-routes cuttingtravel times between EU capitals and regions, and, alternatively, an integrated European Silk Road initiative that combines transport modes on the Chinese model. ■In the area of energy/decarbonisation we seek to “electrify” the Green Deal. We call for funding to accelerate the realisation of a smart and integrated electricity gridfor 100%-renewable energy transmission (e-highway), support for complementary battery and green-hydrogen projects, and a programme, modelled on the SURE initiative, to co-finance member-state decarbonisation and Just Transition policies.■The crisis induced by the pandemic, coming as it does on top of the financial and euro crises, poses a huge challenge. The response needs to take account of the longer-run structural challenges, and above all that of climate change. The European Union should rise to these challenges in the reform of an ambitious medium-runrecovery programme, appropriately financed. An outline of such a programme isset out here by way of illustration, but many permutations and options are available to policymakers.
    Keywords: European recovery programme; Covid-19
    Date: 2020–06–18
  3. By: Egüez, Alejandro (Department of Economics, Umeå University)
    Abstract: Paper [I] investigates the energy efficiency of multi-dwelling buildings in Sweden to find out whether the ownership type matters. More specifically, we investigate whether rental apartment buildings are less energy efficient than cooperative apartment buildings and whether public ownership has a negative impact on energy efficiency. A conceptual framework is presented to illustrate that such differences could be explained by the split incentives problem and deviations from profit maximizing interests. The empirical analysis is based on a unique dataset that combines data from energy performance certificates with ownership data on residential units. The results indicate that cooperative apartment buildings are significantly more energy efficient than buildings with rental apartments. The results also indicate that publicly owned buildings have somewhat lower energy performance than privately owned ones. Paper [II] Incomplete information may be one reason why some households do not invest in energy efficiency even though it would benefit them to do so. Energy performance certificates (EPCs) have been promoted to overcome such information shortages. In this paper, we investigate whether EPCs together with mandatory home energy audits make households more likely to invest in energy efficiency. Our study takes advantage of the mandatory nature of the EPCs to avoid the potential selection bias problem that typically applies to studies using voluntary energy audits as the treatment. Our treatment group consists of singlefamily houses in Sweden sold from 2008, i.e., when EPCs became legally required in connection with sales of residential buildings, to 2015; while the control group consists of houses sold between 2002 and 2008, i.e., without an EPC. The results show that there is no statistically significant treatment effect for most of the measures that a household can take to improve the energy performance of their house. The significant treatment effect that we do find concerns a few heating system-related measures. Paper [III] The price of district heating in Sweden is unregulated and differs substantially among different networks. This paper investigates if the price variation can partly be explained by ownership status, i.e., whether the network companies are privately- or municipally-owned. The empirical analysis is based on data on district heating prices, ownership status, and network characteristics for the period 2012-2017. The results show that prices are higher in privatelyowned district heating networks than in municipally-owned networks, especially in the fixed component of the price. It is argued that municipal and private companies’ divergent objectives may be part of the explanation for these differences. Finally, district heating prices are positively correlated with the market prices for heat pumps, regardless of ownership, which suggests a general price-setting strategy based on the price of substitutes. Paper [IV] assesses whether and to what extent income and the stringency and enforcement (S&E) of environmental regulation influence compliance with the EU Waste Hierarchy (EWH), i.e., how EU member states treat waste. The EWH prioritizes waste prevention and re-use over recycling, which is ranked above waste to energy (WtE), while incineration and landfilling are the least preferred options. Biennial panel data for the period 2010–2016 is used to create a compliance index based on the waste treatment alternatives in the EWH. The waste (excluding major mineral waste) of 26 European Union countries is examined. This study is the first of its kind to regress an EWH compliance index on income, the stringency and enforcement of environmental regulation, and other variables that are also expected to affect the relative benefits and costs of waste treatment, such as population density, heating demand, and electricity prices. The shares of landfilling, incineration, WtE, and recycling are also modeled to capture the effect of these variables in the waste treatment mix. The stringency and enforcement of environmental regulation are found to have a positive effect on compliance with the EWH, which has increased over time.
    Keywords: energy efficiency; energy performance certificates; multi-dwelling; buildings; ownership; principal-agent; public versus private management; split incentives; home energy audits; quasi-natural experimental design; incomplete information; investment decision; energy efficiency gap; policy evaluation; district heating prices; public versus private; natural monopoly; two-part tariff; EU waste hierarchy; waste treatment ladders; income; policy stringency; policy enforcement
    JEL: D42 D83 L11 L33 L43 L95 O44 Q41 Q48 Q53 R11
    Date: 2020–10–23
  4. By: Bedri Kamil Onur Tas
    Abstract: This paper empirically investigates the impact of public procurement regulation quality on competition and cost-effectiveness. I employ the World Bank’s Benchmarking Public Procurement quality scores. Using extensive data about public procurement in the European Economic Area, Switzerland, and Macedonia, the paper exhibits positive effects of improved regulation quality. Better quality scores are associated with higher levels of competition and cost-effectiveness. Improved regulation quality significantly increases number of bidders and the probability that procurement price is lower than estimated cost
    Keywords: Public Procurement, Regulation, Competition
    JEL: H57 O12
    Date: 2019–03
  5. By: Felix Samy Soliman
    Abstract: The environmental regulations US firms are exposed to are often place-based, incentivizing firms to move to less regulated counties or states. Consistent with this argument, multiplant firms partially regulated under the ozone regulations of the US Clean Air Act offset regulation-induced reductions among regulated plants with spillovers to unregulated plants and by moving plants out of regulated areas. Taken together, these leakage effects fully offset emissions reductions at regulated plants. Effects are strongest among highly productive firms and those operating in tradable industries.
    Keywords: emissions leakage, aggregate effects of regulation, environmental economics, Clean Air Act, industrial emissions
    JEL: Q52 Q58 H32 R32
    Date: 2020
  6. By: Djamel KIRAT; Claire GAVARD
    Keywords: , Emissions trading, European allowances, International credits, causality analysis
    Date: 2020
  7. By: Ritz, R.
    Abstract: Since the 2015 Paris Agreement, climate change – and wider environmental, social and governance (ESG) issues – have risen to board-level on the corporate agenda. Under increasing pressure from institutional investors, companies are reformulating their strategies for a climate-constrained world. A novel aspect of the emerging corporate response is that executive compensation is being linked to climate targets. At the world’s largest energy companies, climate metrics now make up 8% of CEO’s short-term incentive plans. This paper explains the case for corporate climate action, summarizes the use to date of climate-linked management incentives, and presents a framework for understanding their benefits and design challenges.
    Keywords: Balanced scorecard, corporate climate action, corporate strategy, ESG, executive compensation, management incentives
    JEL: L21 M12 Q54
    Date: 2020–10–29
  8. By: Robert Clark (Queen's University); Mario Samano (HEC Montreal)
    Abstract: In an effort to lower costs of provision, authorities have encouraged the consolidation of providers for a number of services such as electricity distributors, school boards, hospitals, and municipalities. In this paper we propose an endogenous merger process to evaluate the impact of government-provided incentives on consolidation patterns,and to evaluate the resulting outcomes. The process takes as input estimates from a stochastic frontier cost model, which yields an average cost curve for the industry. Policy parameters are used to simulate final configurations using offers that are the output of a Nash Bargaining problem. The efficiency of candidate merged entities is determined by a relative-influence function that measures the degree to which the combination of the involved firms' levels of efficiency results in cost-increasing amalgamations, and an interconnection cost that measures the impact of the size of the conglomerate that is formed. We calibrate parameters by applying the merger process to replicate the observed industry reconfiguration and then use these parameters to simulate the consolidation patterns that would have resulted from different policy incentives. We apply the method to the case of Ontario, where past mergers of local electricity distribution companies were incentivized by transfer tax reductions and a further round of mergers was recently proposed. Our findings suggest that the proposed tax incentive would have no impact on efficiency levels and consolidation patterns, and that even a substantial subsidy would still leave about five times as many LDCs as desired by policy makers.
    Date: 2020–07
  9. By: Egüez, Alejandro (Department of Economics, Umeå University)
    Abstract: The price of district heating in Sweden is unregulated and differs substantially among different networks. This paper investigates if the price variation can partly be explained by ownership status, i.e., whether the network companies are privately- or municipally-owned. The empirical analysis is based on data on district heating prices, ownership status, and network characteristics for the period 2012-2017. The results show that prices are higher in privately-owned district heating networks than in municipally-owned networks, especially in the fixed component of the price. It is argued that municipal and private companies’ divergent objectives may be part of the explanation for these differences. Finally, district heating prices are positively correlated with the market prices for heat pumps, regardless of ownership, which suggests a general price-setting strategy based on the price of substitutes.
    Keywords: district heating prices; ownership; public versus private; natural monopoly; two-part tariff
    JEL: D42 L11 L33 L43 L95 Q41
    Date: 2020–10–23
  10. By: David Rodina; John Farragut
    Abstract: We study the problem of a principal who wants to incentivize an agent's investment in productivity through an information disclosure policy. The agent participates in a market and benefits from an improved perception of his productivity. Under asymmetric information about the agent's ability we explore how qualitative features of the optimal deterministic grading scheme depend on the distribution of the agent's ability. Perhaps surprisingly, random grades can induce higher investment. When the effect of the agent's investment is subject to exogenous shocks and there is no asymmetric information, in a wide variety of circumstances the optimal disclosure policy has a relatively simple threshold form.
    Keywords: Information Design
    JEL: D8
    Date: 2020–10
  11. By: Ara Jo (Center of Economic Research, ETH Zürich, Zürichbergstrasse 18, 8089 Zürich, Switzerland.)
    Abstract: The elasticity of substitution between clean and dirty energy and the direction of technological change are central parameters in discussing one of the most challenging questions today, climate change. Despite their importance, there are few studies that empirically estimate these key parameters. In this paper, I estimate the elasticity of substitution between clean and dirty energy from micro data, jointly with technological parameters that reflect the direction of technological change within the energy aggregate. I find estimates of the elasticity of substitution ranging between 2 and 3. The largely dirty-energy-biased technological change observed in the data validates the framework of directed technological change, given the historical movement of relative energy prices and the estimated elasticity of substitution above unity. However, I also find suggestive evidence that clean-energy-augmenting technology is growing faster than dirty-energy-augmenting technology in recent years with changes in relative energy prices and higher subsidies for clean energy.
    Keywords: Elasticity of substitution, directed technical change, climate change
    JEL: Q40 Q55 Q54 O33
    Date: 2020–10
  12. By: Garth Heutel; Xin Zhang
    Abstract: We study the incidence of pollution taxes and their impact on unemployment in an analytical general equilibrium efficiency wage model. We find closed-form solutions for the effect of a pollution tax on unemployment, factor prices, and output prices, and we identify and isolate different channels through which these general equilibrium effects arise. An effect arising from the efficiency wage specification depends on the form of the workers' effort function. Numerical simulations further illustrate our results and show that this efficiency wage effect can fully offset the sources-side incidence results found in models that omit it.
    JEL: H22 J64 Q52
    Date: 2020–10

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.