nep-reg New Economics Papers
on Regulation
Issue of 2021‒07‒19
eleven papers chosen by
Natalia Fabra
Universidad Carlos III de Madrid

  1. Short-term risk management for electricity retailers under rising shares of decentralized solar generation By Russo, Marianna; Kraft, Emil; Bertsch, Valentin; Keles, Dogan
  2. The Real Effects of Mandatory CSR Disclosure on Emissions: Evidence from the Greenhouse Gas Reporting Program. By Lavender Yang; Nicholas Z. Muller; Pierre Jinghong Liang
  3. Impacts of the Clean Air Act on the Power Sector from 1938-1994: Anticipation and Adaptation By Karen Clay; Akshaya Jha; Joshua A. Lewis; Edson R. Severnini
  4. Carbon Pricing and Power Sector Decarbonisation: Evidence from the UK By Marion Leroutier
  5. The Knowledge Mobility of Renewable Energy Technology By P. G. J. Persoon; R. N. A. Bekkers; F. Alkemade
  6. Coal-Fired Power Plant Retirements in the U.S. By Rebecca J. Davis; J. Scott Holladay; Charles Sims
  7. Who Will Pay for Legacy Utility Costs? By Lucas W. Davis; Catherine Hausman
  8. How far is gas from becoming a global commodity? By Luís Aguiar-Conraria; Gilmar Conceição; Maria Joana Soares
  9. Paying off the Competition: Market Power and Innovation Incentives By Xuelin Li; Andrew W. Lo; Richard T. Thakor
  10. Infrastructure Investment and Labor Monopsony Power By Wyatt Brooks; Joseph P. Kaboski; Illenin O. Kondo; Yao Amber Li; Wei Qian
  11. Mapping urban living standards in developing countries with energy consumption data By Agyemang, Felix; Fox, Sean; Memon, Rashid

  1. By: Russo, Marianna; Kraft, Emil; Bertsch, Valentin; Keles, Dogan
    Abstract: Electricity retailers face increasing uncertainty due to the ongoing expansion of unpredictable, distributed generation in the residential sector. We analyze how increasing levels of households' solar PV self-generation affect the short-term decisionmaking and associated risk exposure of electricity retailers in day-ahead and intraday markets. First, we develop a stochastic model accounting for correlations between solar load, residual load and price in sequentially nested wholesale spot markets across seasons and type of day. Second, we develop a computationally tractable twostage stochastic mixed-integer optimization model to investigate the trading portfolio and risk optimization problem faced by retailers. Through conditional value-at-risk we assess retailers' profitability and risk exposure to different levels of PV self-generation by assuming different retail tariff schemes. We find risk-hedging trading strategies and tariffs to have greater impact in Summer and with low levels of residual load in the system, i.e. when the solar generation uncertainty affect more the households demand to be served and the wholesale spot prices. The study is innovative in unveiling the potential of dynamic electricity tariffs, which are indexed to spot prices, to sustain a high penetration of renewable energy source while promoting risk sharing between customer and retailer. Our findings have implications for electricity retailers facing load and revenue risks in wholesale spot markets, likewise for regulators and policy-makers interested in electricity market design.
    Keywords: Electricity markets,Stochastic model,Stochastic programming,Retailer uncertainty modeling,Riskmanagement
    JEL: C10 C50 G10 Q42 Q48
    Date: 2021
  2. By: Lavender Yang; Nicholas Z. Muller; Pierre Jinghong Liang
    Abstract: We examine the real effects of the Greenhouse Gas Reporting Program (GHGRP) on electric power plants in the United States. Starting in 2010, the GHGRP requires both the reporting of greenhouse gas emissions by facilities emitting more than 25,000 metric tons of carbon dioxide per year to the Environmental Protection Agency and the public dissemination of the reported data in a comprehensive and accessible manner. Using a difference-in-difference research design, we find that power plants that are subject to the GHGRP reduced carbon dioxide emission rates by 7%. The effect is stronger for plants owned by publicly traded firms. We detect evidence of strategic behavior by firms that own both GHGRP plants and non-GHGRP plants. Such firms strategically reallocate emissions between plants to reduce GHGRP-disclosed emissions. We interpret this as evidence that the program is costly to the affected firms. Our results offer new evidence that public or shareholder pressure is a primary channel through which mandatory Corporate Social Responsibility (CSR) reporting programs affect firm behavior.
    JEL: G38 L21 M14 M41 Q54
    Date: 2021–07
  3. By: Karen Clay; Akshaya Jha; Joshua A. Lewis; Edson R. Severnini
    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 impacts of the 1970 Clean Air Act (CAA) on the power sector. This unique long panel provides 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. This timing aligns with the passage of the original 1963 CAA, which provided the federal government with limited authority to “control” air pollution, but signaled 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.
    JEL: K32 N52 N72 Q41 Q48 Q52 Q58
    Date: 2021–06
  4. By: Marion Leroutier (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Decreasing greenhouse gas emissions from electricity generation is crucial to tackle climate change. Yet, empirically little is known on the effectiveness of economic instruments in the power sector. This paper examines the impact of the UK Carbon Price Support (CPS), a carbon tax implemented in the UK power sector in 2013. Compared to a synthetic control unit built from other European countries, emissions from the UK power sector declined by 26 percent on an average year between 2013 and 2017. Bounds on the effects of potential UK confounding policies and several placebo tests suggest that the carbon tax caused at least 80% of this decrease. Three mechanisms are highlighted: a decrease in emissions at the intensive margin; the closure of some high-emission plants at the extensive margin; and a higher probability of closure than in the synthetic UK for plants at risk of closure due to European air quality regulations. This paper shows that a carbon tax on electricity generation can lead to successful decarbonisation.
    Keywords: Synthetic control method,Synthetic control method carbon tax,Electricity generation,Carbon tax
    Date: 2021–06
  5. By: P. G. J. Persoon; R. N. A. Bekkers; F. Alkemade
    Abstract: In the race to achieve climate goals, many governments and organizations are encouraging the regional development of Renewable Energy Technology (RET). The spatial dynamics and successful regional development of a technology partly depends on the characteristics of the knowledge base on which this technology builds, in particular the analyticity and cumulativeness of knowledge. In this study we systematically evaluate these knowledge base characteristics for a set of 13 different RETs. We find that, while several RETs (photovoltaics, fuel-cells, energy storage) have a highly analytic knowledge base and develop more widespread, there are also important RETs (wind turbines, solar thermal, geothermal and hydro energy) for which the knowledge base is less analytic and which develop less widespread. Likewise, the technological cumulativeness tends to be lower for the former than for the latter group. This calls for regional policies to be specific for different RETs, taking for a given RET into account both the type of knowledge it builds on as well as the local presence of this knowledge.
    Date: 2021–06
  6. By: Rebecca J. Davis; J. Scott Holladay; Charles Sims
    Abstract: We summarize the history of U.S. coal-fired plant retirements over the last decade, describe planned future retirements, and forecast the remaining operating life for every operating coal-fired generator. We summarize the technology and location trends that are correlated with the observed retirements. We then describe a theoretical model of the retirement decision coal generator owners face. We use retirements from the last decade to quantify the relationships in the model for retired generators. Our model predicts that three-quarters of coal generation capacity will retire in the next twenty years, with most of that retirement concentrated in the next five years. Policy has limited ability to affect retirement times. A $20 per MWh electricity subsidy extends the average life of a generator by six years. A $51 per ton carbon tax brings forward retirement dates by about two years. In all scenarios, a handful of electricity generators remain on the grid beyond our forecast horizon.
    JEL: H40 L10 L50 L94 Q4
    Date: 2021–06
  7. By: Lucas W. Davis; Catherine Hausman
    Abstract: The growing "electrify everything" movement aims to reduce carbon dioxide emissions by transitioning households and firms away from natural gas toward electricity. This paper considers what this transition means for the customers who are left behind. Like most natural monopolies, natural gas utilities recover fixed costs by spreading fees out over time across their customer base. In periods of a shrinking customer base, this can lead to a lack of fixed cost recovery. To shed light on these dynamics, we use historical evidence from growing and shrinking utilities. We show that in the U.S. during the period 1997-2019 there are many growing utilities, but also hundreds of utilities that experienced sustained periods of customer loss. We then study how the loss of customers impacts utility operations and finances. Utilities that lose customers maintain their pipeline infrastructure even as the customer base financing their operations is shrinking. As a result, historical capital cost recovery and some operations and maintenance costs do not decrease. In keeping with this, we observe that utility revenues shrink, but less than one-for-one -- indicating higher bills for remaining customers. We highlight resulting equity implications -- both across income levels and across racial groups -- of the current push for building electrification and other energy transition policies. We conclude by discussing alternative utility financing options, such as recouping fixed costs through taxes rather than rates.
    JEL: L95 L97 Q40 Q48 R11
    Date: 2021–06
  8. By: Luís Aguiar-Conraria (NIPE and Economics Department, University of Minho); Gilmar Conceição (Faculdade de Economia e Gestão da Universidade Licungo); Maria Joana Soares (NIPE and Department of Mathematics, University of Minho)
    Abstract: While we can say that there is a global market for crude oil, we cannot say the same cannot for natural gas. There is a strand of literature that argues that, in the last decades, gas markets have become less regional and more global. We use wavelets to test this hypothesis and conclude otherwise: although the European and Japanese gas markets are signifcantly synchronized, they are much less than the oil markets, which we take as the benchmark. We also show that the North American gas market fluctuations are independent of the other gas markets. Finally, we show that the existing synchronization between gas markets almost vanishes once one filters out the effect of oil price variations, suggesting that it is the global oil market that connects the regional gas markets.
    Keywords: Gas markets; Oil market; Wavelet Power Spectrum; Wavelet Coherency;Wavelet Phase-Difference
    Date: 2021
  9. By: Xuelin Li; Andrew W. Lo; Richard T. Thakor
    Abstract: How does a firm’s market power in existing products affect its incentives to innovate? We explore this fundamental question using granular project-level and firm-level data from the pharmaceutical industry, focusing on a particular mechanism through which incumbent firms maintain their market power: “reverse payment” or “pay-for-delay” agreements to delay the market entry of competitors. We first show that when firms are unfettered in their use of “pay-for-delay” agreements, they reduce their innovation activities in response to the potential entry of direct competitors. We then examine a legal ruling that subjected these agreements to antitrust litigation, thereby reducing the incentive to enter them. After the ruling, incumbent firms increased their net innovation activities in response to competitive entry. These effects center on firms with products that are more directly affected by competition. However, at the product therapeutic area level, we find a reduction in innovation by new entrants after the ruling in response to increased competition. Overall, these results are consistent with firms having reduced incentives to innovate when they are able to maintain their market power, highlighting a specific channel through which this occurs.
    JEL: D42 D43 G31 K21 L41 L43 L65 O31 O32
    Date: 2021–06
  10. By: Wyatt Brooks; Joseph P. Kaboski; Illenin O. Kondo; Yao Amber Li; Wei Qian
    Abstract: In this paper we study whether or not transportation infrastructure disrupts local monopsony power in labor markets using an expansion of the national highway system in India. Using panel data on manufacturing firms, we find that monopsony power in labor markets is reduced among firms near newly constructed highways relative to firms that remain far from highways. We estimate that the highways reduce labor markdowns significantly. We use changes in the composition of inputs to identify these effects separately from the reduction of output markups that occurs simultaneously. The impacts of highway construction are therefore pro-competitive in both output and input markets, and act to increase the share of income that labor receives by 1.8--2.3 percentage points.
    JEL: J0 J42 O1 O18
    Date: 2021–07
  11. By: Agyemang, Felix; Fox, Sean; Memon, Rashid
    Abstract: Data deficits in developing countries impede evidence-based urban planning and policy, as well as fundamental research. We show that residential electricity consumption data can be used to partially address this challenge by serving as a proxy for relative living standards at the block or neighbourhood scale. We illustrate this potential by combining infrastructure and land use data from Open Street Map with georeferenced data from ~2 million residential electricity meters in the megacity of Karachi, Pakistan to map median electricity consumption at block level. Equivalent areal estimates of economic activity derived from high-resolution night lights data (VIIRS) are shown to be a poor predictor of intraurban variation in living standards by comparison. We argue that electricity data are an underutilised source of information that could be used to address empirical questions related to urban poverty and development at relatively high spatial and temporal resolution. Given near universal access to electricity in urban areas globally, this potential is significant
    Date: 2021–06–20

This nep-reg issue is ©2021 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.