nep-reg New Economics Papers
on Regulation
Issue of 2020‒12‒14
thirteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Efficient Pricing of Electricity Revisited By Mathias Mier
  2. Costs and Benefits of Political and Physical Collaboration in the European Power Market By Mathias Mier; Kais Siala; Kristina Govorukha; Philip Mayer
  3. Carbon pricing and the elasticity of CO2 emissions By Rafaty, R.; Dolphin, G.; Pretis, F.
  4. A Green COVID-19 Recovery of the EU Basic Materials Sector: Identifying Potentials, Barriers and Policy Solutions By Olga Chiappinelli; Timo Gerres; Karsten Neuhoff; Frederik Lettow; Heleen de Coninck; Balázs Felsmann; Eugénie Joltreau; Gauri Khandekar; Pedro Linares; Jörn Richstein; Aleksander Śniegocki; Jan Stede; Tomas Wyns; Cornelis Zandt; Lars Zetterberg
  5. Energy Network Innovation for Green Transition: Economic Issues and Regulatory Options By Jamasb, Tooraj; Llorca, Manuel; Meeus, Leonardo; Schittekatte, Tim
  6. Green Governments By Niklas Potrafke; Kaspar Wüthrich
  7. Pricing vehicle emissions and congestion using a dynamic traffic network simulator By André de Palma; Shaghayegh Vosough; Robin Lindsey
  8. Static Hedging of Weather and Price Risks in Electricity Markets By Javier Pantoja Robayo; Juan C. Vera
  9. Climate Change Mitigation Policies: Aggregate and Distributional Effects By Cavalcanti, T.; Hasna, Z.; Santos, C.
  10. Behavioral intervention to conserve energy in the workplace By Valeria Fanghella; Giovanna d'Adda; Massimo Tavoni
  11. Pricing and Efficient Public Transport Supply in a Mobility as a Service Context By Daniel Hörcher; Daniel Graham
  12. Regulatory Experimentation in Energy: Three Pioneer Countries and Lessons for the Green Transition By Schittekatte, Tim; Meeus, Leonardo; Jamasb, Tooraj; Llorca, Manuel
  13. Market Definition and Competition Policy Enforcement in the Pharmaceutical Industry By Georges Siotis; Carmine Ornaghi; Micael Castanheira De Moura

  1. By: Mathias Mier
    Abstract: Increasing shares of intermittent renewable energies challenge the dominant way to trade electricity ex-ante in forward, day-ahead, and intraday markets: Coal power plants and consumers cannot react to the stochastic element of renewables, whereas gas turbines can. We use a theoretical model to analyze consumer behavior and incentives of perfectly competitive firms to invest in different types of technologies under ex-ante pricing. Curtailed consumers need to get subsidized in high of their disruption cost. Coal power firms recover cost. Renewables and gas turbine firms fail to do so. We identify imperfections that arise from the delay in price setting and market clearing. Do real-time prices induce an efficient outcome? Consumers need to get taxed in high of rationing cost. Support is redundant for gas turbine firms, but renewables firms still fail to recover cost because they cannot ensure against their price risk.
    Keywords: Efficient pricing, market design, capacity mechanisms, renewable energies, supply uncertainty, consumer behavior
    JEL: D41 D47 Q41 Q48 L94 L98
    Date: 2020
  2. By: Mathias Mier; Kais Siala; Kristina Govorukha; Philip Mayer
    Abstract: We use the cross-impact balance analysis to develop narratives that differ in the level of political collaboration (in terms of the stringency of the EU climate policy) and physical collaboration (possible expansion of transmission capacity between countries) in the European power market. Applying a CGE model and two power market models, we quantify the impact of the two dimensions on emission, abatement cost, and electricity prices until 2050. The most collaborative narrative leads to CO2 emissions of 90 to 139 Mt, abatement cost of 245 to 271 EUR/ton CO2, and prices of 56 to 67 EUR/MWh in 2050. The least collaborative one has emissions of 848 to 1013 Mt, cost of 378 to 559 EUR/ton, and prices of 47 to 57 EUR/MWh. In all narratives, countries at the periphery of the European market tend to experience lower prices and e.abate more, whereas prices are higher and abatement lower in central and Southeast Europe.
    Keywords: Collaboration, energy transition, decarbonization, European power market, , transmission, renewable energy, energy system modeling
    JEL: C61 C68 Q40 Q41
    Date: 2020
  3. By: Rafaty, R.; Dolphin, G.; Pretis, F.
    Abstract: We study the impact of carbon pricing on CO2emissions across five sectors for a panel of 39 countries over 1990-2016. Using newly constructed sector-level carbon price data, we implement a novel approach to estimate the changes in CO2emissions associated with (i) the introduction of carbon pricing regardless of the price level; (ii) the implementation effect as a function of the price level; and (iii) post-implementation marginal changes in the CO2price.We find that the introduction of carbon pricing has reduced growth in CO2emissions by 1% to 2.5% on average relative to counterfactual emissions, with most abatement occurring in the electricity and heat sector. Exploiting variation in carbon pricing to explain heterogeneity in treatment effects, we find an imprecisely estimated semi-elasticity of a 0.05% reduction in emissions growth per average $1/metric ton (hereafter abbreviated as: ton) of CO2.After the carbon price has been implemented, each marginal price increase of $1/tCO2 has temporarily lowered the growth rate of CO2emissions by around 0.01%. These are disappointingly small effects. Simulating potential future emissions reductions in response to carbon price paths, we conclude that –in the absence of complementary non-pricing policy interventions – carbon pricing alone, even if implemented globally, is unlikely to be sufficient to achieve emission reductions consistent with the Paris climate agreement.
    Keywords: Carbon Pricing, CO2 Emissions, Decarbonization, Carbon Tax, Climate Change, Climate Policy
    JEL: Q43 Q48 Q54 Q58 H23
    Date: 2020–11–30
  4. By: Olga Chiappinelli; Timo Gerres; Karsten Neuhoff; Frederik Lettow; Heleen de Coninck; Balázs Felsmann; Eugénie Joltreau; Gauri Khandekar; Pedro Linares; Jörn Richstein; Aleksander Śniegocki; Jan Stede; Tomas Wyns; Cornelis Zandt; Lars Zetterberg
    Abstract: This paper explores which climate-friendly projects could be part of the COVID-19 recovery while jump-starting the transition of the European basic materials industry. Findings from a literature review on technology options in advanced development stages for climate-friendly production and enhanced sorting and recycling of steel, cement, aluminium and plastics are combined with insights from interviews with 31 European industry stakeholders about the practical and economic feasibility of these technology options. Results indicate that with an estimated investment of 28.9 billion Euro, about 20% of EU’s basic materials could be produced through low-emission processes or additional recycling by 2025 with technologies that are commercially available or at pilot scale today. However, our stakeholder consultation also shows that in order to make these short-term investments viable in the long term, six main barriers need to be addressed, namely i) the lack of effective and predictable carbon pricing, ii) the limited availability of affordable green electricity, iii) the lack of a regulatory framework for circularity, iv) low technology readiness and funding, v) the lack of infrastructure for hydrogen, CO2 and power, and vi) the lack of demand for climate-friendly and recycled materials. Based on these insights, the paper proposes elements of a policy package that can create a long-term framework favourable for investments in these technologies and should ideally accompany the recovery package to give credibility to investors that the business case will last beyond the recovery timeframe.
    Keywords: Green COVID-19 Recovery; Industrial Decarbonisation; Policy Package; EU Green Deal; Technology Readiness
    JEL: L61 L65 Q54 Q55 Q58
    Date: 2020
  5. By: Jamasb, Tooraj (Department of Economics, Copenhagen Business School); Llorca, Manuel (Department of Economics, Copenhagen Business School); Meeus, Leonardo (Florence School of Regulation (FSR), Robert Schuman Centre for Advanced Studies, European University Institute, Italy and Vlerick Energy Centre, Vlerick Business School, Belgium); Schittekatte, Tim (Florence School of Regulation (FSR), Robert Schuman Centre for Advanced Studies, European University Institute, Italy and Vlerick Energy Centre, Vlerick Business School, Belgium)
    Abstract: In this age of low-cost capital and stimulus packages, is it the best time to heavily invest in tomorrow’s energy networks and research infrastructure? In the academic literature it is widely acknowledged that innovation is key to decarbonise the energy sector and foster sustainable development. However, post liberalisation has been struggling to promote R&D and innovation. Is this the case of business, regulatory, or policy failure, or are there other factors involved? In this paper, we discuss the reasons for slow uptake of new technologies in energy networks and propose some remedies for the European context, where innovation in the area of energy networks is crucial for the implementation of the Green Transition. The solutions to address this shortfall need to be considered in an overarching manner. The specific points raised here are based on incentive regulation, the establishment of competitive funding models like Ofgem’s Low Carbon Network Fund and a large European collaborative research hub.
    Keywords: Energy network infrastructure; European green deal; Innovation; Research and development
    JEL: L50 L90 O30 Q40 Q50
    Date: 2020–11–27
  6. By: Niklas Potrafke; Kaspar Wüthrich
    Abstract: We examine how Green governments influence macroeconomic, education, and environmental outcomes. Our empirical strategy exploits that the Fukushima nuclear disaster in Japan gave rise to an unanticipated change in government in the German state Baden-Wuerttemberg in 2011. The incumbent rightwing government was replaced by a leftwing government led by the Green party. We use the synthetic control method to select control states against which Baden-Wuerttemberg’s outcomes can be compared. The results do not suggest that the Green government influenced macroeconomic outcomes. The Green government implemented education policies that caused comprehensive schools to become larger. We find no evidence that the Green government influenced CO2 emissions, particulate matter emissions, or increased energy usage from renewable energies overall. An intriguing result is that the share of wind power usage decreased relative to the estimated counterfactual. Intra-ecological conflicts and realities in public office are likely to have prevented the Green government from implementing drastic policy changes.
    Keywords: Green governments, partisan politics, synthetic control method, causal effects, Fukushima nuclear disaster, environmental policies, energy policies, renewable energies, comprehensive schools
    JEL: C33 D72 E65 H70 I21 Q48 Q58
    Date: 2020
  7. By: André de Palma; Shaghayegh Vosough; Robin Lindsey (Université de Cergy-Pontoise, THEMA)
    Abstract: Road traffic is a major contributor to air pollution which is a serious problem in many large cities. Experience in London, Milan, and Stockholm indicates that road pricing can be useful in reducing vehicle emissions as well as congestion. This study uses the dynamic traffic network simulator METROPOLIS to investigate the effectiveness of tolls to target emissions and congestion externalities on a stylized urban road network during a morning commuting period. The concentration and spatial distribution of four pollutants are calculated using a Gaussian dispersion model that accounts for wind speed and direction. Single and double cordon tolls are evaluated, as well as flat tolls that do not change during the simulation period and step tolls that change at half-hourly intervals. The presence of emission externalities raises optimal toll levels, and substantially increases the welfare gains from tolling although the advantage of step tolls over flat tolls is lower than if congestion is the only externality. The individual welfaredistributional effects of tolling vary strongly with residential and workplace locations relative to the cordon, and also differ for the windward and leeward sides of the city.
    Keywords: congestion, dynamic traffic simulation, emissions, pollution dispersion, tolls
    JEL: H2 R41 Q53
    Date: 2020
  8. By: Javier Pantoja Robayo (School of Economics and Finance, Universidad EAFIT. Medellin, Colombia); Juan C. Vera (Tilburg School of Economics and Management, Tilburg University, The Netherlands)
    Abstract: We present the closed-form solution to the problem of hedging price and quantity risks for energy retailers (ER), using financial instruments based on electricity price and weather indexes. Our model considers an ER who is intermediary in a regulated electricity market. ERs buy a fixed quantity of electricity at a variable cost and must serve a variable demand at a fixed cost. Thus ERs are subject to both price and quantity risks. To hedge such risks, an ER could construct a portfolio of financial instruments based on price and weather indexes. We construct the closed form solution for the optimal portfolio for the mean-Var model in the discrete setting. Our model does not make any distributional assumption.
    Date: 2020–11
  9. By: Cavalcanti, T.; Hasna, Z.; Santos, C.
    Abstract: We evaluate the aggregate and distributional effects of climate change mitigation policies using a multi-sector equilibrium model with intersectoral input–output linkages and worker heterogeneity calibrated to different countries. The introduction of carbon taxes leads to changes in relative prices and inputs reallocation, including labor. For the United States, reaching its Paris Agreement pledge would imply at most a 0.6% drop in output. This impact is distributed asymmetrically across sectors and individuals. Workers with a comparative advantage in dirty energy sectors who do not reallocate bear relatively more of the cost but constitute a small fraction of the labor force.
    Keywords: Climate change, carbon taxes, worker heterogeneity, labor reallocation
    JEL: E13 H23 J24
    Date: 2020–11–30
  10. By: Valeria Fanghella (Grenoble Ecole de Management); Giovanna d'Adda (University of Milan); Massimo Tavoni (Politecnico di Milano)
    Abstract: This study investigates the effect of a large-scale behavioral intervention to conserve energy in the workplace, consisting of an energy-saving competition among a bank’s branches. More than 500 branches were involved for a period of one year. Using a difference-in-difference estimation, we find that the competition significantly reduces monthly electricity consumption outside the work schedule (by 7 percent), but that overall energy use does not change significantly (reduction of 2.5 percent). Branch characteristics do not lead to differentiated program response, in stark contrast with the residential sector. In the same setting, we also evaluate a technological intervention automating building energy management. The retrofit leads to significant energy savings (of 18 percent), also concentrated outside the main work schedule. Our results stress the importance of considering contextual characteristics when implementing behavioral programs and show potential overlaps with smart technology investments.
    Keywords: Behavioral intervention, Energy conservation, Energy efficiency, Workplace, Difference-in-difference
    JEL: C93 D91 H32 Q41
    Date: 2020–11
  11. By: Daniel Hörcher (Imperial College); Daniel Graham (Imperial College)
    Abstract: Mobility as a Service (MaaS) is widely expected to make sustainable transport choices more attractive. New approaches to ticketing will be a core part of MaaS, both to attract users and fund services. The associated pricing decisions will be a matter of public policy as much as business objectives, because they can have large social welfare effects. This paper describes options for different pricing structures and their relative efficiency. It considers the potential impact that differing objectives of public and privately-owned transport providers might have on pricing decisions. It concludes with an assessment of the possible effects of Covid-19 on the MaaS market.
    Date: 2020–10–12
  12. By: Schittekatte, Tim (Florence School of Regulation (FSR), Robert Schuman Centre for Advanced Studies, European University Institute, Italy and Vlerick Energy Centre, Vlerick Business School, Belgium); Meeus, Leonardo (Florence School of Regulation (FSR), Robert Schuman Centre for Advanced Studies, European University Institute, Italy and Vlerick Energy Centre, Vlerick Business School, Belgium); Jamasb, Tooraj (Department of Economics, Copenhagen Business School); Llorca, Manuel (Department of Economics, Copenhagen Business School)
    Abstract: Regulation cannot always move as fast as innovation. Regulatory experiments enable real-life testing of new products, services or business models by allowing derogations from existing rules while maintaining the protection of energy consumers. The outcomes of these experiments inform future regulation. In this chapter, we discuss experiences with regulatory experimentation in the energy sector of three pioneering countries: the Netherlands, Great Britain and Italy. We compare the implementations along six dimensions: eligible project promoters, scope of the derogations, length of the derogations, administration of the experiments, funding, and transparency. We also describe how the early approaches have evolved in these countries. Finally, we look ahead and discuss how learnings can be applied to enable experimentation at the European level involving technologies that are expected to become important to enable the green transition.
    Keywords: Innovation; Research and development; Energy regulation; Energy retail; Green deal
    JEL: L50 L90 O30 Q40 Q50
    Date: 2020–11–27
  13. By: Georges Siotis; Carmine Ornaghi; Micael Castanheira De Moura
    Abstract: We focus on market definition in the pharmaceutical industry, where the introduction of generics in different markets provide a sequence of quasi natural experiments involving a significant competitive shock for the molecule experiencing Loss of Exclusivity. We show that generic entry alters competitive constraints and generates market-wide effects. Paradoxically, entry may soften competitive pressure for some originators. We obtain these results by econometrically estimating time-varying price elasticities and apply the logic of the Hypothetical Monopolist Test to delineate antitrust markets. They provide strong empirical support to the approach consisting in defining relevant markets contingent on the theory of harm. We discuss the relevance of these findings in the context of ongoing cases.
    Keywords: market definition; competition policy; antitrust; pharmaceutical industry
    JEL: D22 I11 L13
    Date: 2020–12

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