nep-reg New Economics Papers
on Regulation
Issue of 2021‒07‒12
fifteen papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. The impact of carbon prices on renewable energy support By Abrell, Jan; Kosch, Mirjam
  2. Energy conversion and storage: The value of reversible power-to-gas systems By Glenk, Gunther; Reichelstein, Stefan
  3. Technological Progress and Carbon Price Formation: an Analysis of EU-ETS Plants By Marc Baudry; Anouk Faure
  4. The Impact of Distributed Solar Power Generation on the Demand and the Use of Electricity in Households By Amelung, Torsten
  5. Tax versus Regulations: Robustness to Polluter Lobbying Against Near-Zero Emission Targets By Hirose, Kosuke; Ishihara, Akifumi; Matsumura, Toshihiro
  6. Commercialisation contracts- European support for low-carbon technology deployment By Ben McWilliams; Georg Zachmann
  7. Green Technology Transitions with an Endogenous Market Structure By Bondarev, Anton; Dato, Prudence; Krysiak, Frank C.
  8. Railway Terminal Regulation By Nacima Baron
  9. A review of public policy instruments to promote freight modal shift in Europe: Evidence from evaluations By Takman, Johanna; Gonzalez-Aregall, Marta
  10. Impacts of the Clean Air Act on the Power Sector from 1938-1994: Anticipation and Adaptation By Clay, Karen; Jha, Akshaya; Lewis, Joshua; Severnini, Edson R.
  11. Paying for health gains By Luigi Siciliani; James Gaughan; Nils Gutacker; Hugh Gravelle; Martin Chalkley
  12. Consumer Information and the Limits to Competition By Armstrong, Mark; Zhou, Jidong
  13. Water Quality, Policy Diffusion Effects and Farmers’ Behavior By Chabé-Ferret, Sylvain; Reynaud, Arnaud; Tène, Eva
  14. Entry regulation and competition evidence from retail and labor markets of pharmacists By Rostam-Afschar, Davud; Unsorg, Maximiliane
  15. Public Transport and Urban Structure By Leonardo J. Basso; Matías Navarro; Hugo Silva

  1. By: Abrell, Jan; Kosch, Mirjam
    Abstract: This paper examines how optimal renewable energy (RE) support (RES) policies need to be adjusted to account for carbon prices. We show theoretically and empirically that changing carbon prices requires adjusting RE production subsidies due to two different motives: First, RE premiums need to be reduced to reflect the carbon value embedded in the market price. Second, RE premiums and feed-in tariffs need to be adjusted once a fuel switch away from coal towards gas power occurs. This adjustment is necessary to account for changes in the marginal external benefit of RE. For the case of the UK, we estimate the optimal RE subsidies and their adjustments due to a fuel switch. Furthermore, we use numerical simulations to analyze the impact of varying carbon prices on optimal RES. We show that the necessary adjustment due to a fuel switch is empirically rather small, whereas RE premiums must be phased out with increasing carbon prices due to the increasing reflection of the carbon cost in the electricity market price. Finally, a fuel switch increases solar-induced abatement, whereas it wind-induced abatement is rather invariant to a fuel switch. Yet, the differentiation of RE subsidies between wind and solar power is modest.
    Keywords: Renewable promotion,Carbon pricing,Electricity generation
    JEL: Q41 Q42 Q58
    Date: 2021
  2. By: Glenk, Gunther; Reichelstein, Stefan
    Abstract: In the transition to decarbonized energy systems, Power-to-Gas (PtG) processes have the potential to connect the existing markets for electricity and hydrogen. Specifically, reversible PtG systems can convert electricity to hydrogen at times of ample power supply, yet they can also operate in the reverse direction to deliver electricity during times when power is relatively scarce. Here we develop a model for determining when reversible PtG systems are economically viable. We apply the model to the current market environment in both Germany and Texas and find that the reversibility feature of unitized regenerative fuel cells (solid oxide) makes them already cost-competitive at current hydrogen prices, provided the fluctuations in electricity prices are as pronounced as currently observed in Texas. We further project that, due to their inherent flexibility, reversible PtG systems would remain economically viable at substantially lower hydrogen prices in the future, provided recent technological trends continue over the coming decade.
    Keywords: Renewable Energy,Power Markets,Hydrogen,Power-to-Gas,Energy Storage
    JEL: M2 O3 Q4 Q5
    Date: 2021
  3. By: Marc Baudry (EconomiX (Université Paris Nanterre)); Anouk Faure (EconomiX (Université Paris Nanterre) & Chaire Economie du Climat (PSL))
    Abstract: This study investigates the nature of technological progress in six manufacturing industries covered under the EU-ETS, plus the power sector, and its effect on carbon price formation using marginal abatement cost curves. We adopt a technological frontier framework that we calibrate to input and output data at the plant level from 2013 to 2017, with a directional distance function approach. Our results reveal that most of the time, technological progress resulted in inflating baseline emissions, despite decreasing the carbon intensity of production. In our sample industries, technological progress therefore leads to increase abatement efforts, raising the equilibrium price of carbon.
    Keywords: SEQE, Changement Technologique, Production, Analyse Empirique,
    JEL: D24 L6 O33 Q58 Q54
    Date: 2021–06
  4. By: Amelung, Torsten
    Abstract: Solar modules are increasingly deployed at the electricity customers’ premises. Once these customers become power generators (“prosumers”), there is a change in the customers’ behavior regarding the consumption of electricity. This paper analyses the behavioral patterns of these prosumers based on field studies that have been undertaken in different countries. As prosumers obtain a higher transparency than consumers, they try to shift their consumption into those hours, when there is higher solar irradiation. Taxation, grid fee structures and affiliate marketing impact on the behavioral patterns as well. This might lead to an increase of electricity consumption and thus reducing the electricity that can be fed in into the grid. Understanding this behavior is crucial for designing policies to increase the solar generation, as decentralized solar generation could play an important role in the future energy mix.
    Keywords: Prosumers,Distributed Energy,Behavior of Housholds
    JEL: D91 M21 O33
    Date: 2021
  5. By: Hirose, Kosuke; Ishihara, Akifumi; Matsumura, Toshihiro
    Abstract: We investigate polluter lobbying against near-zero emission targets in a monopoly market. To this end, we compare three typical environmental policies---an emission cap regulation that restricts total emissions, an emission intensity regulation that restricts emissions per output unit, and an emission tax. We presume a policy to be most robust to lobbying when a lesser strict emission target (i.e., an increase in the targeted emission level) imposed by the government to the industry increases the firms' profit least significantly among the three policies. We find that the emission tax is the most robust in the presence of lobbying if the government aims for a net-zero emission society. However, the emission tax is the least robust if the emission target is loose or the government is weak against lobbying.
    Keywords: net-zero emission industry, emission cap, emission intensity, emission tax, emission equivalence, profit ranking
    JEL: L13 L51 Q52
    Date: 2021–06–20
  6. By: Ben McWilliams; Georg Zachmann
    Abstract: The authors wish to thank Natalia Fabra, Pedro Linares, Jörn Richstein and Oliver Sartor for helpful comments. Many of the technologies that can help the European Union become a net-zero emissions economy by 2050 have been shown to work but are not yet commercially competitive with incumbent fossil-fuel technologies. There is not enough private investment to drive the deployment of new low-carbon alternatives. This is primarily because carbon prices are...
    Date: 2021–07
  7. By: Bondarev, Anton; Dato, Prudence (University of Basel); Krysiak, Frank C.
    Abstract: The transition to a green technology is central to environmental policy. During such a transition, technology and market structure often change simultaneously, as firms developing the new technology enter the market of incumbents supplying the old one. This leads to the questions how technological change and market changes interact and at which stage of the technology transition incumbents or newcomers are more likely to drive the technology transition. We advance a model that describes this co-evolution of technology and market. Our results show that this co-evolution induces substantial market failures. The transition might be blocked by an incumbent protecting the old technology and, even if it is not, emissions decline less rapidly than in the social optimum. Furthermore, incentives change during the transition: At the beginning, entrants can be crucial to start the transition, but, later on, the incumbent will usually become the driving force. When this switch occurs depends on the propensity of the new technology to attract new customers and on the possible speed of technological development. Our results have implications for environmental policy, as they indicate that supporting small new- comers might be desirable at the beginning but can be detrimental at later stages of a technology transition.
    Keywords: Green Technology, Innovation, Imperfect Competition, Endogenous Market Structure, Technology Transition, Emissions, Climate Change
    JEL: C60 L10 O31 Q54 Q55
    Date: 2021–04
  8. By: Nacima Baron (LVMT - Laboratoire Ville, Mobilité, Transport - ENPC - École des Ponts ParisTech - Université Gustave Eiffel)
    Abstract: This articles presents an overview of terminal railway regulation principles and implementation. It starts with the different elements of terminal infrastructure, how these elements were considered as essential facilities in various periods of railway development worldwide and what type of regulation patterns were implemented. The aim of the paper is to articulate terminal regulation principles and the transformative relationships between State, rail infrastructures, transport companies and other stakeholders. It details regulation conditions for terminals in Europe, with access conditions and pricing schemes for the 27 countries. The conclusions are that, along with slow and heterogeneous pathways to free and undiscriminated access to terminals in Europe, some terminal management entities follow an entrepreneurial pattern and strategically redefine their mission, taking the opportunity of their progressive autonomy from railway incumbents to develop side businesses such as retail activities and real estate in regulated or in non-regulated railway models. Mots clé Terminal regulation, passenger station regulation, station as essential facility, station traffic regulation, station security regulation, passenger station development, station megaproject, passenger station management, station pricing, station retail, passenger flow management
    Date: 2021
  9. By: Takman, Johanna (Swedish National Road & Transport Research Institute (VTI)); Gonzalez-Aregall, Marta (University of Gothenburg)
    Abstract: This paper presents a review of past and present public policy instruments in Europe promoting a modal shift of freight transports. The identified policy instruments are categorized based on several shared characteristics. To the extent that ex-post evaluations are available, policy performance is discussed, and the evaluations are compared. <p> The study identifies 93 public policy instruments in Europe. The most common type of policy is subsidies/grants to rail and/or water implemented at the national level. Most policy instruments only focus on the promotion of one specific transport mode, which most commonly is rail. <p> Evaluations of policy performance were found for 20 policy instruments. The evaluated policy instruments are mainly subsidies/grants at the national level, or policy instruments at EU level. The bias in evaluation towards these types of policy instruments is partly explained by the commitment to evaluation at EU level, and the need for permission by the European Commission to implement and prolong subsidies/grants classified as state aid. The evaluations differ in methodology and regarding what type of performance indicators that are evaluated. The evaluation guidelines and criteria that exist at EU level are often followed to some extent but interpreted differently depending on for example type of policy and data availability. Thus, comparing policy performance is difficult. <p> In general, there seem to be a more positive performance of policy instruments promoting a modal shift to rail than to waterborne transports. Several evaluations of EU-policy instruments describe a poor or a mixed performance of the policy instruments, while the performance of subsidies/grant at national level are often considered positive by the evaluations. A commonly mentioned factor for underachievement of the policy instruments is problems related to outreach of the policy, lack of applications, long and complicated application processes and a high administrative burden for the companies applying for financial support. Targets for the policy instruments are often broad and general, with a lack of clarity, making it difficult to meet all objectives, as well as to evaluate the policy instruments effectiveness and efficiency. Thus, well-defined targets, as well as better outreach and simpler processes could be one way forward in improving modal shift policy instruments in Europe.
    Keywords: Modal shift; Freight transport; Public policy instruments; Evaluation; Effectiveness; Efficiency
    JEL: R42
    Date: 2021–07–02
  10. By: Clay, Karen (Carnegie Mellon University); Jha, Akshaya (Carnegie Mellon University); Lewis, Joshua (University of Montreal); Severnini, Edson R. (Carnegie Mellon University)
    Abstract: The passage of landmark government regulation is often the culmination of evolving social pressure and incremental policy change. During this process, firms may preemptively adjust behavior in anticipation of impending regulation, making it difficult to quantify the overall economic impact of the legislation. This study leverages newly digitized data on the operation of virtually every fossil-fuel power plant in the United States from 1938-1994 to examine the economic impacts of the 1970 Clean Air Act (CAA) on the power sector. This unique long panel provides us an extended pre-regulation benchmark, allowing us to account for both anticipatory behavior by electric utilities in the years leading up to the Act's passage and reallocative effects of the CAA across plant vintages. We find that the CAA led to large and persistent decreases in output and productivity, but only for plants that opened before 1963. The timing aligns with the passage of the original 1963 CAA, which provided the federal government with the authority to "control" air pollution, sending a strong signal to firms of impending federal regulation. We provide historical evidence of anticipatory responses by utilities in the design and siting of plants that opened after 1963. We also find that the aggregate productivity losses of the CAA borne by the power sector were substantially mitigated by the reallocation of output from older less efficient power plants to newer plants.
    Keywords: power plants, electricity generation, total factor productivity, clean air act, air quality regulations, NAAQS
    JEL: K32 N52 Q52
    Date: 2021–06
  11. By: Luigi Siciliani (Department of Economics and Related Studies, University of York, York, UK.); James Gaughan (Centre for Health Economics, University of York, York, UK.); Nils Gutacker (Centre for Health Economics, University of York, York, UK.); Hugh Gravelle (Centre for Health Economics, University of York, York, UK.); Martin Chalkley (Centre for Health Economics, University of York, York, UK)
    Abstract: Payments to healthcare providers are often based on the number of patients they treat according to their particular health condition with well-known limitations. Payment based on health outcomes, a form of pay-for-performance, has long been advocated as a possible solution. This study adopts a contract theory approach and illustrates how it can inform practical implementation of pay-for-performance schemes that reward health outcomes. We first provide a simple but general model on the design of an incentive scheme that rewards providers for improved health, as a function of key parameters related to patient health benefits and provider costs. We then calibrate the model using data from two elective procedures, hip and knee replacement, using patient reported outcome measures. The pricing rule suggests that the bonus should be set to reflect the difference between the provider’s marginal cost of a health improvement before the policy intervention and the provider’s marginal cost evaluated at the target health set by the purchaser. We provide estimates of the optimal bonus for hip and knee replacement under a range of assumptions about provider cost functions and the value of health improvements.
    Keywords: hospitals, pay for performance, quality, health
    JEL: I11 I14 L13
    Date: 2021–07
  12. By: Armstrong, Mark; Zhou, Jidong
    Abstract: This paper studies competition between firms when consumers observe a private signal of their preferences over products. Within the class of signal structures which induce pure-strategy pricing equilibria, we derive signal structures which are optimal for firms and those which are optimal for consumers. The firm-optimal policy amplifies underlying product differentiation, thereby relaxing competition, while ensuring consumers purchase their preferred product, thereby maximizing total welfare. The consumer-optimal policy dampens differentiation, which intensifies competition, but induces some consumers to buy their less-preferred product. Our analysis sheds light on the limits to competition when the information possessed by consumers can be designed flexibly.
    Keywords: Information design, Bertrand competition, product differentiation, online platforms
    JEL: D43 D47 D8 L13 L15
    Date: 2021–06
  13. By: Chabé-Ferret, Sylvain; Reynaud, Arnaud; Tène, Eva
    Abstract: The nitrogen cycle is one of the most disrupted geo-chemical cycles on earth. Human activity, mainly through intensive farming, releases nitrogen by-products such as nitrates and ammonium into the environment where they have wide ranging impacts on human health, biodiversity and climate change. One of the earliest and most ambitious regulations of nitrogen use in the world is the EU Nitrate Directive, which not only sets limitations on the amount and timing of nitrogen application but also makes the adoption of modern nitrogen management tools mandatory in an effort to enhance nitrogen use efficiency. We leverage the geographical and temporal variation in the implementation of the Nitrate Directive in France to estimate its causal effects on water quality, biodiversity and farmers’ practices, productivity and profits in a Difference In Difference (DID) framework. We modify the DID estimator to account for the existence of diffusion effects along river streams, leveraging recent developments in the analysis of Randomized Controlled Trials over a network of interrelated units. This is a methodological extension that can be of interest for similar applications. We find that the EU Nitrate Directive reduced the concentration of nitrates in surface water by 1.23 milligrams per liter: a decrease of 8%. We find a clear dose-response relationship, with higher impacts where more of the upstream area is covered by the Directive. We also find that other biochemical indicators, as well as biodiversity, as measured by the number of fish and fish species, also improved as a result of the Directive. We also find that the Directive managed to improve farmers’ nitrogen use efficiency and productivity and did not decrease their profits. These findings are consistent with the Porter hypothesis. Finally, we show that not accounting for diffusion effects biases downwards the estimate of the effect of the Directive obtained with a classical DID estimator and the more recent geographic discontinuity estimator.
    Keywords: Policy Evaluation ; Diffusion Effects ; Water Pollution
    JEL: D04 D80 Q01 Q25 Q53
    Date: 2021–06–28
  14. By: Rostam-Afschar, Davud; Unsorg, Maximiliane
    Abstract: We examine a deregulation of German pharmacists to assess its effects on retail and labor markets. From 2004 onward, the reform allowed pharmacists to expand their single-store firms and to open or acquire up to three a liated stores. This partial deregulation of multi-store prohibition reduced the cost of firm expansion substantially and provides the basis for our analysis. We develop a theoretical model that suggests that the general limitation of the total store number per firm to four is excessively restrictive. Firms with hig€h managerial e ciency will open more stores per firm and have higher labor demand. Our empirical analysis uses very rich information from the administrative panel data on the universe of pharmacies from 2002 to 2009 and their a liated stores matched with survey data, which provide additional information on the characteristics of expanding firms before and after the reform. We find a sharp immediate increase in entry rates, which continues to be more than five-fold of its pre-reform level after five years for expanding firms. Expanding firms can double revenues but not profits after three years. We show that the increase of the number of employees by 50% after five years and the higher overall employment in the local markets, which increased by 40%, can be attributed to the deregulation.
    Keywords: regulation,acquisitions,entry,market concentration,wages,employment,pharmacists
    JEL: L4 L5 L2 J44 J23
    Date: 2021
  15. By: Leonardo J. Basso; Matías Navarro; Hugo Silva
    Abstract: Public transport is central to commuting in most cities around the world. This paper studies the role of public transportation in shaping the urban structure. The main contribution of the paper is to propose a tractable model as a tool to study urban regulations and transport policies in the long-run. Using the classic monocentric city framework, we model public transport as a mode that can only be accessed by walking to a limited set of stops. By incorporating a discrete transport mode choice and income heterogeneity, the model remains simple yet can reproduce non-monotonous urban gradients observed in cities with public transport, and well-observed spatial patterns of sorting by income and use of public transport. For example, it can reproduce an inverted U-shape of transit usage along the city.
    Date: 2020

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