nep-reg New Economics Papers
on Regulation
Issue of 2021‒06‒14
sixteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Climate policies after Paris: Pledge, trade, and recycle. Insights from the 36th Energy Modeling Forum study (EMF36) By Böhringer, Christoph; Peterson, Sonja; Rutherford, Thomas F.; Schneider, Jan; Winkler, Malte
  2. Why electricity market models yield different results: Carbon pricing in a model-comparison experiment By Ruhnau, Oliver; Bucksteeg, Michael; Ritter, David; Schmitz, Richard; Böttger, Diana; Koch, Matthias; Pöstges, Arne; Wiedmann, Michael; Hirth, Lion
  3. Do Electricity Prices Affect Electric Vehicle Adoption? By Bushnell, James PhD; Muehlegger, Erich PhD; Rapson, David PhD
  4. Fragmented Landscape of European Policies in the Energy Sector: First-Mover Advantages By Kristina Govorukha; Philip Mayer; Dirk Rübbelke
  5. Future market design options for electricity markets with high RES-E: lessons from the Irish Single Electricity Market By Lynch, Muireann Á.; Longoria, Genora; Curtis, John
  6. Gains associated with linking the EU and Chinese ETS under different assumptions on restrictions, allowance endowments, and international trade By Winkler, Malte; Peterson, Sonja; Thube, Sneha
  7. Fossil fuel subsidy inventories vs. net carbon prices: A consistent approach for measuring fossil fuel price incentives By Böhm, Jens; Peterson, Sonja
  8. Contracting with Endogenously Incomplete Commitment: Escape Clauses By Tangerås, Thomas; Gick, Wolfgang
  9. Climate Neutral Production, Free Allocation of Allowances under Emissions Trading Systems, and the WTO: How to Secure Compatibility with the ASCM By Roland Ismer; Harro van Asselt; Jennifer Haverkamp; Michael Mehling; Karsten Neuhoff; Alice Pirlot
  10. What Kinds of Distributed Generation Technologies Defer Network Expansions? Evidence from France By Nicolas Astier; Ram Rajagopal; Frank A. Wolak
  11. Disaggregate Consumption Feedback and Energy Conservation By Andor, Mark; Gerster, Andreas; Goette, Lorenz
  12. Measuring long-run price elasticities in urban travel demand By Javier Donna
  13. The Macroeconomic Effects of a Carbon Tax to Meet the U.S. Paris Agreement Target: The Role of Firm Creation and Technology Adoption By Alan Finkelstein Shapiro; Gilbert E. Metcalf
  14. Who emits CO2? Landscape of ecological inequalities in France from a critical perspective By Antonin Pottier; Emmanuel Combet; Jean-Michel Cayla; Simona de Lauretis; Franck Nadaud
  15. Do energy efficiency improvements reduce energy use? Empirical evidence on the economy-wide rebound effect in Europe and the United States By Berner, Anne; Bruns, Stephan B.; Moneta, Alessio; Stern, David I.
  16. Behavioral Anomalies and Fuel Efficiency: Evidence from Motorcycles in Nepal By Massimo Filippini; Nilkanth Kumar; Suchita Srinivasan

  1. By: Böhringer, Christoph; Peterson, Sonja; Rutherford, Thomas F.; Schneider, Jan; Winkler, Malte
    Abstract: This article summarizes insights of the 36th Energy Modeling Forum study (EMF36) on the magnitude and distribution of economic adjustment costs to greenhouse gas emission reduction targets. Under the Paris Agreement countries voluntarily committed themselves to emission reductions - so-called Nationally Determined Contributions (NDCs) - in order to combat global warming. The study suggests that tightening of NDCs in line with the commonly agreed 2 degrees temperature target will induce global economic costs of roughly 1% in 2030 - yet, these costs are unevenly spread across regions with fossil fuel exporting countries being most adversely affected from the transition towards a low-carbon economy. In order to reduce adjustment costs at the global and regional level, comprehensive emissions trading which exploits leastcost abatement options is strongly desirable as it can relax contentious normative debates on equitable burden sharing. Lump-sum recycling of revenues from emissions pricing in equal amounts to every household appeals as an attractive strategy to mitigate regressive effects and thereby make stringent climate policy more acceptable on societal fairness grounds.
    Keywords: Paris Agreement,emissions pricing and trading,revenue recycling
    JEL: D58 H23 Q54 Q58
    Date: 2021
  2. By: Ruhnau, Oliver; Bucksteeg, Michael; Ritter, David; Schmitz, Richard; Böttger, Diana; Koch, Matthias; Pöstges, Arne; Wiedmann, Michael; Hirth, Lion
    Abstract: The European electricity industry, the dominant sector of the world’s largest cap-and-trade scheme, is one of the most-studied examples of carbon pricing. In particular, numerical models are often used to study the uncertain future development of carbon prices and emissions. While parameter uncertainty is often addressed through sensitivity analyses, the potential uncertainty of the models themselves remains unclear from existing single-model studies. Here, we investigate such model-related uncertainty by running a structured model comparison experiment, in which we exposed five numerical power sector models to aligned input parameters—finding stark model differences. At a carbon price of 27 EUR/t in 2030, the models estimate that European power sector emissions will decrease by 36–57% when compared to 2016. Most of this variation can be explained by the extent to which models consider the market-driven decommissioning of coal- and lignite-fired power plants. Higher carbon prices of 57 and 87 EUR/t yield a stronger decrease in carbon emissions, by 45–75% and 52–80%, respectively. The lower end of these ranges can be attributed to the short-term fuel switch captured by dispatch-only models. The higher reductions correspond to models that additionally consider market-based investment in renewables. By further studying cross-model variation in the remaining emissions at high carbon prices, we identify the representation of combined heat and power as another crucial driver of differences across model results.
    Keywords: Carbon pricing,EU Emission Trading System (EU ETS),Electricity decarbonization,Power sector,Renewable energy,Fuel switch,Combined heat and power,Electricity market modeling,Model comparison,Model-related uncertainty
    JEL: Q4 Q5
    Date: 2021
  3. By: Bushnell, James PhD; Muehlegger, Erich PhD; Rapson, David PhD
    Abstract: This report presents evidence that gasoline prices have a larger effect on demand for battery electric vehicles (BEVs) than do electricity prices in California. A spatially-disaggregated panel dataset of monthly BEV registration records was matched to detailed records of gasoline and electricity prices in California from 2014-2017, and the matched data was used to estimate the effect of energy prices on BEV demand. Two distinct empirical approaches (panel fixed-effects and a utility-border discontinuity) yield remarkably similar results: a given change in gasoline prices has roughly four times the effect on BEV demand as a similar percentage change in electricity prices.
    Keywords: Social and Behavioral Sciences, Electric vehicles, prices, operating costs, demand, electricity, gasoline, empirical methods, consumer behavior
    Date: 2021–05–01
  4. By: Kristina Govorukha; Philip Mayer; Dirk Rübbelke
    Abstract: In order to achieve the commonly agreed emission reduction target, the European Commission developed binding national targets for each member state until 2030 and called upon the member states to submit National Energy and Climate Plans to ensure increased transparency for the respective national targets and strategies. An analysis of these plans shows that some of the emission reductions set at the national level prescribe a more ambitious decarbonisation than the EU-wide limits. However, since a transformation to a climate-friendly system requires considerable investment, the question arises as to why some states apparently want to be in the vanguard. We find that countries may have an incentive to outperform other states in the development of a low-carbon electricity system in order to pass on part of the transformation costs to neighbouring countries.
    Keywords: electricity, utilities, thermal generation, unilateral action, climate policy
    JEL: C60 Q40
    Date: 2021
  5. By: Lynch, Muireann Á.; Longoria, Genora; Curtis, John
    Date: 2021
  6. By: Winkler, Malte; Peterson, Sonja; Thube, Sneha
    Abstract: Linking the EU and Chinese Emission Trading Systems (ETS) increases the cost-efficiency of reaching greenhouse gas mitigation targets, but both partners will benefit - if at all - to different degrees. Using the global computable-general equilibrium (CGE) model DART Kiel, we evaluate the effects of linking ETS in combination with 1) restricted allowances trading, 2) adjusted allowance endowments to compensate China, and 3) altered Armington elasticities when Nationally Determined Contribution (NDC) targets are met. We find that generally, both partners benefit from linking their respective trading systems. Yet, while the EU prefers full linking, China favors restricted allowance trading. Transfer payments through adjusted allowance endowments cannot sufficiently compensate China so as to make full linking as attractive as restricted trading. Gains associated with linking increase with higher Armington elasticities for China, but decrease for the EU. Overall, the EU and China favor differing options of linking ETS. Moreover, heterogeneous impacts across EU countries could cause dissent among EU regions, potentially increasing the difficulty of finding a linking solution favorable for all trading partners.
    Keywords: Paris Agreement,NDC,Emission Trading,Linking ETS,China,EU,Verbindung von Emissionshandelsystemen,NDC,Pariser Klimabakommen,Emissionshandel
    JEL: F13 F18 Q58 Q54
    Date: 2021
  7. By: Böhm, Jens; Peterson, Sonja
    Abstract: Different reports including the broadly cited OECD fossil fuel subsidy inventory arrive at high monetary values of fossil fuel subsidies and suggest that phasing out these subsidies has a high potential to increase the efficiency of climate policies. We show that the inventory approach gives misleading information about this potential since there is little correlation with net carbon prices that actually reflect the stringency of climate policies. We use data on net fossil fuel taxation from the OECD's Taxing Energy Use report and augment it with data on subsidies and emission permits, to calculate national and sectoral net carbon prices for the top six emitters (China, US, India, Russia, Japan and Germany) and for Poland and Sweden, two European countries perceived as examples of opposing environmental policies. Our results show that in high-income countries, subsidies mainly relate to reduced fuel tax rates for certain uses, so that e.g. Sweden, for which the OECD inventory reports subsidies per ton of CO2 26 times higher than the US, has a 770% higher national net carbon price than the US. While Germany and Russia have similar subsidy levels in the OECD inventory, the national net carbon price in Germany is 50 €/tCO2, while producer subsidies lead to a negative net carbon price of -6€/tCO2 in Russia. Our results illustrate that raising taxes on fossil fuels will often lead to higher reported inventory subsidies. Inventory measures thus give little information about the efficiency of climate policy. Our analysis also shows the large differences in net carbon prices across countries and across sectors within countries. Net carbon prices should replace fossil fuel subsidies in the policy debates and become the basis for national energy tax reforms and international agreements on minimum carbon prices.
    Keywords: fossil fuel subsidies,carbon pricing,energy taxation,climate policy
    JEL: H2 Q48 Q54
    Date: 2021
  8. By: Tangerås, Thomas (Research Institute of Industrial Economics (IFN)); Gick, Wolfgang (Free University of Bozen/Bolzano, Italy)
    Abstract: We study mechanism design under endogenously incomplete commitment as it arises in contracting with escape clauses. An escape clause permits the agent to end a contractual relationship under specified circumstances, after which the principal can offer an ex-post contract. Escape clauses are valuable when the maximal number of initial contracts is smaller than the number of agent types. We identify a sufficient condition for incentive optimality of ex-post contracting. Escape clauses are always incentive optimal under severely constrained contracting. On the margin, the optimal escape clause balances the benefit of a better-adapted contract against an increase in dynamic inefficiency.
    Keywords: Constrained contracting; Escape clauses; Endogenously incomplete commitment; Ratchet effect; Revelation principle
    JEL: D82 D84 D86
    Date: 2021–05–28
  9. By: Roland Ismer; Harro van Asselt; Jennifer Haverkamp; Michael Mehling; Karsten Neuhoff; Alice Pirlot
    Abstract: To reach climate neutrality, carbon emissions from the production of basic materials need to be significantly reduced. For governments’ support measures to be consistent with their World Trade Organization obligations, they need to be compatible with the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM). This paper analyzes the ASCM consistency of three selected support schemes, namely: (1) free allocation under emissions trading systems such as the European Union Emissions Trading System (EU ETS) to operators of installations deemed to be at significant risk of carbon leakage; (2) a combination of a charge on carbon-intensive materials with free allocation; and (3) carbon contracts for differences (CCfDs) for operators of climate-neutral installations, in which governments pay out the incremental costs of climate neutral-production processes relative to the costs of conventional primary material production. The analysis reveals that the current system of carbon leakage protection through free allocation is vulnerable to challenges under the ASCM. By contrast, a transition to a combination of free allocation and a charge on carbon-intensive materials would implement consistent carbon-pricing and thus would very likely not amount to a subsidy under the ASCM. In a similar vein, support for climate-neutral installations through CCfDs could be designed in such a way that it confers no benefit, so that it would also not constitute a subsidy.
    Keywords: WTO, ASCM, Carbon Pricing, Free allowance allocation, Climate Contribution, Carbon Contracts for Difference
    JEL: K32 F13 Q54 Q56
    Date: 2021
  10. By: Nicolas Astier; Ram Rajagopal; Frank A. Wolak
    Abstract: This paper estimates the relationship between investments in five distributed generation technologies and hourly net injections to the distribution grid for over 2,000 substations in France between 2005 and 2018. We find that investments in distributed wind and solar capacity have little or no impact on the annual peak of hourly net injections to the distribution grid, while investments in hydroelectric and thermal distributed generation significantly reduce it. An optimistic analysis of battery storage suggests that high levels of investments are required for distributed wind and solar investments to deliver similar reductions in the annual peak of hourly net injections.
    JEL: Q2 Q4 Q5
    Date: 2021–05
  11. By: Andor, Mark; Gerster, Andreas; Goette, Lorenz
    Abstract: Novel information technologies hold the promise to improve decision making. In the context of smart metering, we investigate the impact of providing households with appliance-level electricity feedback. In a randomized controlled trial, we find that the provision of appliance-level feedback creates a conservation effect of an additional 5% relative to a group receiving standard (aggregate) feedback. These conservation effects are largely driven by reductions in electricity use of 10% to 15% during peak hours. Consumers with appliance-level feedback hold more accurate beliefs about the energy consumption of different appliances, consistent with the mechanism in our accompanying model. Our result suggests that conservation effects from a smart-meter rollout will be much larger if appliance-level feedback can be provided. Based on a sufficient statistics approach, we estimate that appliance-level feedback could raise consumer surplus by about 570 to 600 million Euro per annum for German households.
    Keywords: consumption feedback; Disaggregation; energy conser- vation; randomized controlled trial
    JEL: D12 D83 L94 Q41
    Date: 2020–06
  12. By: Javier Donna (University of Florida)
    Abstract: This paper develops a structural model of urban travel to estimate long-run price elasticities. A dynamic discrete choice demand model with switching costs is estimated, using a panel dataset with public market-level data on automobile and public transit use for Chicago. The estimated model shows that long-run own- (automobile) and cross (transit) price elasticities are more elastic than short-run elasticities, and that elasticity estimates from static and myopic models are downward biased. The estimated model isused to evaluate the response to a gasoline tax. Static and myopic models mismeasure long-run substitution patterns, and could lead to incorrect policy decisions.
    Keywords: Long-run price elasticities, Dynamic demand travel, Hysteresis
    JEL: L71 L91 L98
    Date: 2021–05
  13. By: Alan Finkelstein Shapiro (Tufts University); Gilbert E. Metcalf (Tufts University)
    Abstract: We analyze the quantitative labor market and aggregate effects of a carbon tax in a framework with pollution externalities and equilibrium unemployment. Our model incorporates endogenous labor force participation and two margins of adjustment influenced by carbon taxes: firm creation and green production-technology adoption. A carbon-tax policy that reduces carbon emissions by 35 percent - roughly the emissions reductions that will be required under the Biden Administration's new commitment under the Paris Agreement - and transfers the tax revenue to households generates mild positive long-run effects on consumption and output; a marginal increase in the unemployment and labor force participation rates; and an expansion in the number and fraction of firms that use green technologies. In the short term, the adjustment to higher carbon taxes is accompanied by gradual gains in output and consumption and a negligible expansion in unemployment. Critically, abstracting from endogenous firm entry and green-technology adoption implies that the same policy has substantial adverse short- and long-term effects on labor income, consumption, and output. Our findings highlight the importance of these margins for a comprehensive assessment of the labor market and aggregate effects of carbon taxes.
    Keywords: Environmental and Fiscal Policy, Carbon Tax, Endogenous Firm Entry, Green Technology Adoption, Search Frictions, Unemployment, Labor Force Participation
    JEL: E20 E24 E62 H23 O33 Q52 Q55
    Date: 2021–05
  14. By: Antonin Pottier (EHESS - CIRED); Emmanuel Combet (ADEME); Jean-Michel Cayla (EDF); Simona de Lauretis (EDF – CIRED); Franck Nadaud (CNRS - CIRED)
    Abstract: This article provides a panorama of greenhouse gas (GHG) emission inequalities between French households. It presents in a detailed and critical manner the methodological conventions that are used to compute “household emissions†, including the related assumptions. The most common responsibility principle, the “consumer responsibility†, assigns to households the emissions of the products that they consume, resulting in the carbon footprint. It focuses attention on the contributions of individuals, on their choices, and it may obscure the role of non-individual actors and also the collective component of GHG emissions, and it neglects the dimensions of responsibility that are not related to consumption choices. We estimate the distribution of household carbon footprints based on data from the 2011 French Household Budget Survey. Household emissions tend to increase with income, but they also show a strong variability linked to geographical and technical factors that force the consumer to use fossil fuels. Based on sectoral surveys (ENTD 2008; PHEBUS 2013), we also reconstruct household CO2 emissions linked to housing and transport energy. For transport, emissions are proportional to the distance travelled due to the predominant use of private cars. Urban settlement patterns constrain both the length of daily commuting and access to less carbon-intensive modes of transport. For housing, while the size of the dwelling increases with income and distance from urban centres, the first factor to account for variability of emissions is the heating system: this has little to do with income but more to do with settlement patterns, which constrain access to the various energy carriers. Finally, we discuss the difficulties, both technical and conceptual, that are involved in estimating emissions from the super-rich (the top 1 percent).
    Keywords: Greenhouse Gas Emissions, Carbon Footprint, Emissions Inequality, Household Expenditure Distribution, Responsibility
    JEL: D12 D30 Q56 R20
    Date: 2021–05
  15. By: Berner, Anne; Bruns, Stephan B.; Moneta, Alessio; Stern, David I.
    Abstract: Improving energy efficiency is often considered to be one of the keys to reducing greenhouse gas emissions. However, efficiency gains also reduce the cost of energy services and may even reduce the price of energy, resulting in energy use rebounding and potential energy use savings being eaten up. There is only limited empirical research quantifying the economy-wide rebound effect that takes the dynamic economic responses to energy efficiency improvements into account. We use a Structural Factor-Augmented Vector Autoregressive model (S-FAVAR) that allows us to track how energy use changes in response to an energy efficiency improvement while accounting for a vast range of potential confounders. Our findings point to economy-wide rebound effects of 78% to 101% after two years in France, Germany, Italy, the U.K., and the U.S. These findings imply that energy efficiency innovations alone may be of limited help in reducing future energy use and emphasize the importance of tackling carbon emissions directly.
    Keywords: Energy efficiency,economy-wide rebound effect,climate change,climate policy,Structural FAVAR,Independent Component Analysis
    Date: 2021
  16. By: Massimo Filippini (CER–ETH – Center of Economic Research at ETH Zurich and Università della Svizzera italiana, Switzerland); Nilkanth Kumar (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland); Suchita Srinivasan (CER–ETH – Center of Economic Research at ETH Zurich, Switzerland)
    Abstract: Air pollution is a grave problem in urban areas of developing countries, with the transport sector being one of the largest contributors to emissions. A possibility to reduce carbon dioxide emissions would be for individuals to switch to more fuel-efficient vehicles. However, a gamut of behavioral anomalies and market failures have been known to inhibit individuals from investing in fuel-efficiency (due to the well-known ‘energy-efficiency gap’). In this study, we use novel data from Kathmandu, Nepal to understand the socio-economic and psychological determinants of three behavioral anomalies, namely present bias, loss aversion, risk aversion, as well as time preferences. In a second step, we evaluate the effect of these anomalies on the energy-efficiency gap in the choice of motorcycles of individuals. We find that present-biased individuals are less likely to invest in fuel-efficient motorcycles, and thus more likely to buy motorcycles having relatively high total lifetime costs. We also find that other factors such as income, as well as having applied for loans, play an important role in determining these choices. Our results suggest that behavioral anomalies may indeed pose as a hindrance to individuals making cost-minimizing (and also environmentally sound) investment decisions.
    Keywords: Behavioral anomalies, Present bias, Fuel efficiency, Energy-efficiency gap, Motorcycles, Nepal
    JEL: D1 D8 Q4 Q5
    Date: 2021–05

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