allowance trading and energy consumption under a personal carbon trading scheme a dynamic programming approach abstract in response to the challenge of climate change personal carbon trading was put forward as a policy instrument to promote low carbon behavior in the household sector to evaluate the effectiveness of this scheme it is important to gain insight into the allowance trading and energy consumption behavior in a long emission commitment period this paper proposes a dynamic programming model to investigate allowance trading and energy consumption a main feature of the model is its consideration of allowance banking and borrowing activities ten simulated scenarios with different allowance prices price volatility and carbon emission rates are discussed the findings show that consumers would trade more actively when allowance price is volatile it is also found that energy consumption and allowance trading will decrease when the carbon emission rate increases overall the analysis in this paper implies that personal carbon trading scheme would be an effective policy measure to change consumers behavior therefore it would be valuable for decision makers to consider the introduction and implementation of this scheme

the influence of probability on risky choice a parametric examination abstract the appeal of expected utility theory as a basis for a descriptive model of risky decision making has diminished as a result of empirical evidence which suggests that individuals do not behave in a manner consistent with the prescriptive tenets of eut in this paper we explore the influence of probability on risky choice by proposing and estimating a parametric model of risky decision making our results suggest that models which provide for probability transformations are most appropriate for the majority of subjects further we find that the transformation differs for most subjects depending upon whether the risky outcomes are gains or losses most subjects are considerably less sensitive to changes in mid range probability than is proposed by the expected utility model and risk seeking behavior over long shot odds is common

carbon pass through in the electricity sector an econometric analysis abstract we conduct an econometric analysis to investigate the carbon pass through in the greek electricity sector for this reason we utilize a rich micro level panel dataset including hourly data for 24 thermal power plants spanning the period from january 2014 to december 2017 in order to study the pass through of emissions costs to wholesale electricity prices we employ an instrumental variable approach our findings survived several robustness checks accounting for logged linear and non linear econometric specifications the empirical results indicate the existence of an almost complete pass through revealing that retailers fully internalize the cost of co2 permits this study incurs important policy implications since the complete pass through signify that wholesale electricity prices will increase at least in the short run however the overall effect on retail prices will be mostly affected by the amount of co2 permits and the fuel energy mix

allowance price and distributional effects under a personal carbon trading scheme abstract personal carbon trading pct is a downstream cap and trade scheme to reduce carbon emissions from the household sector in comparison to an upstream carbon trading scheme pct is a progressive scheme in which the poorer consumers are mostly winners as their levels of emissions are generally lower this paper investigates the equilibrium price for allowances and distributional effects under a pct scheme first we propose an equilibrium model for pct from which we derive an equilibrium price for allowances second a consumer surplus analysis is conducted to examine the welfare changes caused by the pct scheme generally we find that the pct scheme is progressive and can provide a buffer between the energy and allowance price based on these results the implications are discussed and suggestions for a future study are provided

on the examination of non linear relationship between market structure and performance in the us manufacturing industry abstract this paper attempts to investigate the causal link between market structure and industry performance using a micro panel data set of usa manufacturing industries over the period 1958 2007 we employ a novel panel gmm model strongly accounting for endogenous regressors and threshold variable the empirical findings denote the existence of a non monotonic relationship between market structure and total factor productivity tfp our findings call for future research on the impact of market structure on consumer welfare

forward induction in the battle of the sexes games this paper provides experimental evidence on forward induction as a refinement criterion in the basic extensive form one of the two players chooses to play a battle of the sexes game or to receive a certain payoff according to forward induction choosing to play the game is a signal about intended action though the presence of the outside option changes play we find only limited support for the forward induction hypothesis the effects of the outside option also reflect the creation of a focal point through the asymmetry created by offering the outside option to one of the two players jel c72

noisy leadership an experimental approach abstract we examine the strategic behavior of leaders and followers in sequential duopoly experiments with errors in communication followers either perfectly observe the leaders actions or else they observe nothing consistent with the theory the leaders in our experiments enjoy a greater first mover advantage when followers observe their actions with higher probability albeit their advantage is weaker than the theory predicts and is only weakly increasing with the probability that their actions will be observed our results also show that i when informed followers hardly ever underreact to the leaders quantities but tend to overreact slightly and ii when uninformed followers try to predict leaders quantities and react optimally this suggests that followers view the symmetric cournot outcome as fair and when informed punish leaders who try to exploit their first mover advantage in turn such punishments by overreactions induce leaders to behave more softly than the theory predicts

econometric analysis of australian emissions markets and electricity prices emissions trading schemes aim to reduce the emissions in certain pollutants using a market based scheme where participants can buy and sell permits for these emissions this paper analyses the efficiency of the two largest schemes in australia the nsw greenhouse gas abatement scheme and the mandatory renewable energy trading scheme through their effect on the electricity prices from 2004 to 2010 we use a long run structural modelling technique for the first time on this market it provides a practical long run approach to structural relationships which enable the determination of the effectiveness of the theoretical expectations of these schemes the generalised forecast error variance decomposition analysis finds that both schemes emissions prices have little effect on electricity prices generalised impulse response function analysis support this finding indicating that when shocks are applied to electricity by the two schemes it returns to equilibrium very quickly this indicates that these schemes are not having the effect anticipated in their legislation

carbon pricing and electricity markets the case of the australian clean energy bill abstract we examine the impact of the clean energy bill on the price behavior of electricity futures contracts in the australian national electricity market first we compute ex ante forward risk premiums in the pre tax period until june 2012 then derive market implied expectations about additional costs of the carbon pricing mechanism cpm on generators as well as pass through rates during the carbon tax july 2012 june 2014 and post tax after july 2014 periods our results suggest that the observed carbon premiums became increasingly higher once the carbon tax had been proposed and subsequently legislated in 2011 during periods where market participants could be relatively certain that the tax would be effective we find expected carbon pass through rates between 67 and 150 which seem to be inversely related to emission intensities in the regional markets our results are also a clear indication of strong policy uncertainty with regards to the cpm and suggest that in the future a stable and long term policy framework would be required for a carbon pricing mechanism to have its full effect

asymmetric cost pass through empirical evidence on the role of market power search and menu costs abstract we estimate cost pass through rates based on data for store level retail prices and wholesale costs for up to 90 different brands of milk sold in 327 retail stores across germany the abundance of the data allows us to identify heterogeneity in pass through across retailers and relate it to underlying explanatory factors such as retailer market power measures of consumer search and menu costs results from a threshold error correction process clearly provide empirical support for the rockets and feathers phenomenon prices increase more quickly than they decrease in contrast to much of the existing literature which explains the rockets and feathers phenomenon as a result of retailers exercising market power we find the opposite result the degree of asymmetry in prices is negatively related to market power decreases with the lerner index our measure of cross product search costs does not account for observable differences in asymmetric cost pass through rates between products the rockets and feathers observation is better explained by product specific differences in menu costs mistake costs and costs associated with stock outs which can lead to a loss of consumer goodwill

an analysis of australia s large scale renewable energy target restoring market confidence in 2001 australia introduced legislation requiring investment in new renewable electricity generating capacity the legislation was significantly expanded in 2009 to give effect to a 20 renewable energy target ret importantly the policy was introduced with bipartisan support and is consistent with global policy trends in this article we examine the history of the policy and establish that the stop start nature of renewable policy development has resulted in investors withholding new capital until greater certainty is provided we utilise the methodology from simshauser and nelson 2012 to examine whether capital market efficiency losses would occur under certain policy scenarios the results show that electricity costs would increase by between 51 million and 119 million if the large scale ret is abandoned even after accounting for avoided renewable costs our conclusions are clear we find that policymakers should be guided by a high level public policy principle in relation to large scale renewable energy policy constant review is not reform

marginal co2 cost pass through under imperfect competition in power markets abstract in line with economic theory carbon ets determines a rise in marginal cost equal to the carbon opportunity cost regardless of whether carbon allowances are allocated free of charge or not this paper aims at evaluating to what extent firms in imperfectly competitive markets will pass through into electricity prices the increase in cost by using the load duration curve approach and the dominant firm with competitive fringe model we show that the result is ambiguous the increase in price can be either lower or higher than the marginal co2 cost depending on several structural factors the degree of market concentration the available capacity whether there is excess capacity or not the power plant mix in the market and the power demand level peak vs off peak hours the empirical analysis of the italian context an emblematic case of imperfectly competitive market which can be split into four sub markets with different structural features provides a contribution supporting the model predictions market power therefore would determine a significant deviation from the full pass through rule but we cannot know the sign of this deviation a priori i e without before taking carefully into account the structural features of the power market

the price setting behavior of banks an analysis of open end leverage certificates on the german market abstract this paper presents the first analysis of open end leverage certificates on the german market the major innovations of these certificates are twofold first issuers announce a price setting formula according to which they are willing to buy and sell the certificates over time second the product s lifetime is potentially endless our main findings are that the price setting formula is i designed to strongly favor the issuer and ii is consistent with the main outcome of the life cycle hypothesis for structured financial products stoimenov p a wilkens s 2005 are structured products fairly priced an analysis of the german market for equity linked instruments journal of banking and finance 29 2971 2993 iii this holds for different product features and also in the presence of issuers credit risk and jump risk in the underlying

investment horizon and the attractiveness of investment strategies a behavioral approach we analyze the attractiveness of investment strategies over a variety of investment horizons from the viewpoint of an investor with preferences described by cumulative prospect theory cpt currently the most prominent descriptive theory for decision making under uncertainty a bootstrap technique is applied using historical return data of 1926 2008 to allow for variety in investors preferences we conduct several sensitivity analyses and further provide robustness checks for the results in addition we analyze the attractiveness of the investment strategies based on a set of experimentally elicited preference parameters our study reveals that strategy attractiveness substantially depends on the investment horizon while for almost every preference parameter combination a bond strategy is preferred for the short run stocks show an outperformance for longer horizons portfolio insurance turns out to be attractive for almost every investment horizon interestingly we find probability weighting to be a driving factor for insurance strategies attractiveness

a comparison of the effects of exogenous oil supply shocks on output and inflation in the g7 countries a comparison of the effects of exogenous shocks to global crude oil production on seven major industrialized economies suggests a fair degree of similarity in the real growth responses an exogenous oil supply disruption typically causes a temporary reduction in real gdp growth that is concentrated in the second year after the shock inflation responses are more varied the median cpi inflation response peaks after three to four quarters exogenous oil supply disruptions need not generate sustained inflation or stagflation typical responses include a fall in the real wage higher short term interest rates and a depreciating currency with respect to the dollar despite many qualitative similarities there is strong statistical evidence that the responses to exogenous oil supply disruptions differ across g7 countries for suitable subsets of countries homogeneity cannot be ruled out a counterfactual historical exercise suggests that the evolution of cpi inflation in the g7 countries would have been similar overall to the actual path even in the absence of exogenous shocks to oil production consistent with a monetary explanation of the inflation of the 1970s there is no evidence that the 1973 1974 and 2002 2003 oil supply shocks had a substantial impact on real growth in any g7 country whereas the 1978 1979 1980 and 1990 1991 shocks contributed to lower growth in at least some g7 countries jel e31 e32 q43

monopoly price discrimination and demand curvature this paper presents a general analysis of the eects of monopolistic third degree price discrimination on welfare and output when all markets are served su cient conditions involving straightforward comparisons of the curvatures of the direct and inverse demand functions in the dierent mar kets are presented for discrimination to have negative or positive eects on

the impacts of eu co2 emissions trading on electricity markets and electricity consumers in finland abstract in this paper the likely impacts of the eu emission trading system on the nordic electricity market and on the position of various market actors are assessed in its first phase the eu co 2 emission trading system includes power plants with thermal capacity greater than 20 mw metals industry pulp and paper industry mineral industry and oil refineries this paper describes the assessment done for the finnish minister of trade and industry analysing the likely impacts on power plant operators on energy intensive industries on other industries and on other consumer groups the impacts of emissions trading were studied with the vtt electricity market model and with the times energy system model the annual average electricity price was found to rise 0 74 eur mw h 1 for every 1 tonne co 2 1 in the nordic area large windfall profits were estimated to incur to electricity producers in the nordic electricity market in finland metals industry and private consumers were estimated to be most affected by the electricity market price increases expanded nuclear power generation could limit the increases in the prices of electricity to one third compared to those in the base case

retail banking and behavioral financial engineering the case of structured products abstract we apply cumulative prospect theory and hedonic framing to evaluate discount reverse convertibles drcs and reverse convertible bonds rcbs as important examples of structured products from a boundedly rational investor s point of view while common expected utility theory would also conclude that drcs and rcbs are of interest to investors with moderate return expectations and underestimated stock return volatility that theory would overestimate the market success of drcs and underestimate that of rcbs in comparison to a situation with bounded rationality hedonic framing and relatively low subjectively felt competence levels of investors are decisive for the demand for rcbs

consumer electricity and gas prices across australian capital cities structural breaks effects of policy reforms and interstate differences abstract we detect and analyze the most significant structural changes in the quarterly growth rate of consumer electricity and gas prices in australia and estimate their corresponding seasonal effects to do so we apply the general modelling framework of the bai perron breaking regression to all available quarterly data for capital cities individually and australia as a whole 1989q3 2017q2 retail energy prices in most australian states were deregulated in the 2000s we find that increases in average quarterly growth rates of electricity and gas prices consistently occurred in the third september quarter and find very few instances of increases in any other quarters of the year in the post deregulation period price increases are significantly higher than in the pre deregulation era results for some capital cities are stark in perth third quarter growth in electricity prices has been five times higher after the structural break in australia as a whole third quarter growth in gas prices has been three times higher after the structural break we discuss several possible explanations for energy price rises in the period since deregulation

investment analysis of autocallable contingent income securities autocallable contingent income securities autocalls have payouts contingent on the performance of an underlying asset and give investors an opportunity to earn high yields in a low interest environment the authors collected data on us issued autocalls and modeled a typical autocall under various assumptions finding that they are issued on underlying assets that display high volatility high prices and negative skewness incorporating stochastic volatility into the model explains some of the overpricing routinely reported in prior studies

is the merchant power producer a broken model deregulated energy markets were founded on the merchant power producer a stand alone generator that sold its production to the spot and short term forward markets underpinned by long dated project finance the initial enthusiasm that existed for investment in existing and new merchant power plant capacity shortly after power system deregulation has progressively dissipated following an excess entry result in this article we demonstrate why this has become a global trend using debt sizing parameters typically used by project banks we model a benchmark plant then re simulate its performance using live energy market price data and find that such financings are no longer feasible in the absence of long term power purchase agreements

on the efficiency of competitive markets for emission permits it is typical for economists and policy makers alike to presume that competitive markets allocate emission permits efficiently this paper demonstrates that competition in the emission permits market cannot assure efficiency when the product market is oligopolistic we provide the conditions under which a bureaucratic mechanism is welfare superior to a tradeable emission permits system price taking behaviour in the permits market ensures transfer of licenses to the less efficient in abatement firms which then become more aggressive in the product market acquiring additional permits as a result the less efficient firms end up with a higher than the welfare maximizing share of emission permits if the less efficient in abatement firms are also less efficient in production competitive trading of permits may result in lower output and welfare

pass through in retail and wholesale this paper studies how prices comove across products firms and locations to gauge the relative importance of retailer versus manufacturer level shocks in determining prices i make use of a large panel data set on prices for a cross section of retailers in the u s i analyze prices at the barcode or universal product code upc level for individual stores i find that only 16 of the variation in prices is common across stores selling an identical product 65 of the price variation is common to stores within a particular retail chain but not across retail chains while 17 is completely idiosyncratic to the store and product product categories with frequent temporary sales exhibit a disproportionate amount of completely idiosyncratic price variation my results suggest that most of the observed price variation arises from retail level rather than manufacturer level demand and supply shocks however the behavior of prices is difficult to relate to observed variation in costs and demand at the retail level this suggests that retail prices may vary largely as a consequence of dynamic pricing strategies on the part of retailers or manufacturers rather than static demand and supply shocks this abstract was borrowed from another version of this item

is the effect of competition on price dispersion nonmonotonic evidence from the u s airline industry we investigate the effect of competition on price dispersion in the airline industry using panel data from 1993 to 2008 we find a nonmonotonic effect of competition on price dispersion an increase in competition is associated with greater price dispersion in concentrated markets but with less price dispersion in competitive markets an inverse u relationship our empirical findings are consistent with an oligopolistic second degree price discrimination model and encompass contradictory findings in the literature

does emission permit allocation affect co2 cost pass through a theoretical analysis abstract carbon emissions trading may result in co 2 cost pass through and its rate is influenced by a number of factors this paper theoretically investigates how emission permit allocation affects co 2 cost pass through rate by developing a nash cournot oligopolistic market equilibrium model we find that the derived co 2 cost pass through rates are consistent when grandfathering and auctioning rules are used for permit allocation which are higher than that for benchmarking rule it has also been found that the magnitude of co 2 cost pass through rate is relevant to the type of definition product market structure and average carbon intensity of the industry we suggest that policy makers first use benchmarking rule to attract firms to participate at the early stage of emissions trading system ets and then take auctioning rule when ets is well developed

a note on the effect of cost changes on prices in a recent article in this journal sumner 1981 took an ingenious approach to estimating the level of monopoly power in the cigarette industry he noted that differences in marginal costs exist in the industry due to varying levels of state taxes the sales prices established will satisfy the equation p i liq l mr mc where p price and q the elasticity of demand for the product in question if elasticity is a constant observing the change in marginal cost and the change in price enables one to infer the elasticity of demand perceived by the firm elasticity could then be used as a proxy for the firm s market power this technique turns out to be of very limited applicability however because it is extremely sensitive to the functional form assumed for the demand curve consider the general problem of a firm facing constant marginal costs of c in maximizing profits the firm solves

dynamic multiscale interactions between european carbon and electricity markets during 2005 2016 this study explores the dynamic multiscale interactions between carbon and electricity markets during phases i 2005 2007 ii 2008 2012 and ongoing iii 2013 2016 by introducing the bivariate empirical mode decomposition bemd linear and nonlinear granger causality tests firstly bemd is used to decompose the european carbon and electricity prices into several pairs of simple modes with different timescales secondly causality tests are performed at each pair of modes with a similar timescale significant but asymmetric causalities can be found that the bidirectional linear causality turns to a unidirectional one running from the electricity price to the carbon price from phase i to phase iii whereas the nonlinear interaction enhances from insignificance to significance during the three phases the causality at short timescale is consistent with that of the original data while the causalities at mid and long timescales are more diversified the findings obtained show that the effect of carbon market on the electricity market is weakening which indicates that it is needed to increase its efficiency by raising the carbon price moreover a dynamic adjusting mechanism of emission allowances will be called for as well as the guidance aimed at different timescales in the future

commodity price inflation retail pass through and market power abstract when commodity prices rise wholesalers and retailers of products derived from basic commodities respond by passing along at least a portion of the price increase to consumers in this paper we examine whether firms respond differently to positive commodity price shocks than to negative commodity price shocks that is whether commodity price volatility alters market power we exploit recent volatility in food commodity prices over the period 2007 2010 to investigate how commodity price shocks translate into market power in two different vertically structured food product industries potatoes and fluid milk for potatoes we find both wholesale and retail market power decreases increases during periods of rising falling commodity prices moreover price cost margins widen a substantially greater degree in response to negative shocks than margins narrow in response to positive shocks indicating that commodity price volatility increases market power for fluid milk we find that market power likewise declines during periods of rising commodity prices however market power does not significantly change during periods of falling commodity prices suggesting that commodity price volatility decreases market power

a literature review of economic studies on carbon pricing and australian wholesale electricity markets abstract with the ongoing development of australian anthropogenic climate change mitigation policies there has been a steady increase in modelling studies undertaken to estimate australian carbon prices and their impact on existing electricity markets this article summarises some of the more prominent studies completed by many of australia s foremost economic modelling firms we developed a simple approach for testing the consistency of these studies and their findings in relation to carbon pass through unfortunately we have established that the studies are entirely inconsistent in their estimation of carbon pass through furthermore we were unable to establish why the estimation of carbon pass through varies so significantly this has important implications for policy makers given much of the compensation to be paid to households and businesses under the clean energy future package is predicated on simple assumptions of carbon pass through based upon our analysis of these economic studies our conclusion is that australian policy makers are best guided by relying upon the numerous a posteriori estimations of pass through in the european union emissions trading scheme ets rather than australian a priori studies

are structured products fairly priced an analysis of the german market for equity linked instruments abstract based on a unique data set this paper examines the pricing of equity linked structured products in the german market the daily closing prices of a large variety of structured products are compared to theoretical values derived from the prices of options traded on the eurex european exchange for the majority of products the study reveals large implicit premiums charged by the issuing banks in the primary market a set of driving factors behind the issuers pricing policies is identified for example underlying and type of implicit derivative s for the secondary market the product life cycle is found to be an important pricing parameter

perfect versus imperfect observability an experimental test of bagwell s result abstract in a seminal paper bagwell 1995 games econom behav 8 271 280 claims that the first mover advantage i e the strategic benefit of committing oneself to an action before others can vanishes completely if this action is only imperfectly observed by second movers in our paper we report on an experimental test of this prediction we implement four versions of a game similar to an example given by bagwell each time varying the quality of the signal which informs the second mover for experienced players we do not find empirical support for bagwell s result journal of economic literature classification numbers c72 c92

options and structured products in behavioral portfolios abstract options and structured products have no roles in mean variance portfolios but they have roles in behavioral portfolios behavioral portfolios are composed of mental account sub portfolios each associated with a goal such as retirement income or bequest investors optimize each mental account by finding the assets and asset allocation that maximizes the expected return of each mental account sub portfolio subject to the condition that the probability of failing to reach a preset threshold aspiration level not exceed a preset probability put options are useful in downside protection mental accounts whose goal is avoiding poverty whereas call options are useful in upside potential mental accounts whose goal is a shot at riches we also explore the roles in behavioral portfolios of option collars capital guaranteed notes and barrier range notes

the quality of the signal matters a note on imperfect observability and the timing of moves abstract in a recent study huck and muller games econ behav 31 2 2000 174 190 report that in contrast to bagwell s games econ behav 8 1995 271 280 prediction first movers in a simple experimental market do not lose their commitment power in the presence of noise the present note shows that it is the quality of the signal and not the knowledge about the physical timing of moves that is responsible for these experimental results additionally the findings reported here provide further evidence that the positional order protocol cannot induce non equilibrium play

empirical evidence on the role of non linear wholesale pricing and vertical restraints on cost pass through abstract how a cost shock is passed through to final consumer prices may relate to nominal price stickiness and rigidities the existence of nonadjustable cost components strategic markup adjustments or other contract terms along the supply distribution chain this paper presents a simple framework to assess the potential role of nonlinear pricing contracts and vertical restraints such as resale price maintenance or wholesale price discrimination in the supply chain in explaining the degree of pass through from upstream cost shocks in the ground coffee category to downstream retail prices we find that resale price maintenance increases pass through rate

a resource based view of opportunities to transform australia s electricity sector abstract proponents of low carbon transformation face an uphill battle to reconfigure incumbent energy systems against powerful interests protecting the status quo australia s electricity sector is an example of such a system wedded to fossil fuels and backed by much of the country s political establishment this paper addresses the potential for low carbon transformation in australia s electricity sector it explores the complex and uncertain dynamics shaping the sector and outlines how these can be understood through the lens of strategic agency with an eye for opportunities to drive a shift to renewables it reviews the dynamics of change and re stability shaping australia s electricity sector between 2006 and 2015 and applies a resource based view of transformative agency to analyse these dynamics results show the sector suffers multiple stressors and emphasise disruptive changes in the pipeline critically many of these transformative dynamics stem from factors outside the influence of the electricity sector and its supporters while results do not point to a clear trajectory or outcome of transformation they indicate the uptake of small scale solar photovoltaic pv systems by households and small business will play a defining role in the sector s future configuration furthermore the exploration of transformative dynamics affecting the electricity sector through a resource based lens shows that many opportunities exist for strategic agents to intervene in support of a disruptive shift to renewables the paper suggests a range of mechanisms that agents could use to undermine the strength of fossil energy in the electricity sector and encourage a shift to renewables

assessing emissions mitigation energy policy under integrated supply and demand analysis the colombian case the effects of greenhouse gases on climate variation set policy challenges for the energy industry the largest greenhouse gas contributor globally in this context the energy industry is being subjected to reforms focussing on the environment internalisation of emission costs and the promotion of cleaner technologies to overcome the challenges posed by the emission of greenhouse gases governments have implemented mitigation policies in the power supply industries most policy instruments include either financial incentives or goals and standards and these generate impacts on electricity prices and consumer behaviour this paper models policies effects on prices and demand through an integrated demand and supply analysis for the colombian case while simulation of carbon taxes shows important reductions of fossil fuelled power capacity a feed in tariff policy promotes clean technologies though not significantly reducing use of fossil technologies when applied simultaneously policy has a greater impact on both emission reductions and the diffusion of clean technologies while only increasing electricity prices slightly even when price elasticity of demand is low such policies may have a significant effect on the penetration of renewables and emissions furthermore this structured modelling of policy helps explain how the ultimate intended goal sustainable emissions reduction might be achieved

vertical integration credit ratings and retail price settings in energy only markets navigating the resource adequacy problem abstract energy only markets are prone to the resource adequacy problem i e the timely entry of new plant the reason for this is that competitive energy only markets struggle to be remunerative given reliability constraints and market price caps historically australia s 45 000 mw national electricity market has managed to navigate this well understood problem albeit with government entities directly or indirectly responsible for a surprisingly large 73 of all new plant investments to 2007 but government involvement in direct investment has now ceased so what will enable the industry to navigate the resource adequacy problem into the future quite simply industrial organisation the presence of merchant utilities with investment grade credit ratings and setting any regulated retail prices or price to beat with an lrmc floor

eu emission allowances and the stock market evidence from the electricity industry this paper constitutes to our best knowledge the first econometric analysis on stock market effects of the eu emission trading scheme eu ets our results suggest that eu emission allowance eua price developments matter to the stock performance of electricity firms eua price changes and stock returns of the most important european electricity corporations are shown to be positively related this effect does not work asymmetrically so that stock markets do not seem to react differently to eua appreciations in comparison to depreciations the carbon market effect is shown to be both time and country specific it is particularly strong for the period of eua market shock in early 2006 and differs with respect to the countries where the electricity corporations analysed are headquartered stock market reactions to eua volatility could not be shown

australian retail electricity prices can we avoid repeating the rising trend of the past abstract after a stable or declining real trend that persisted for more than half a century australian retail electricity prices have experienced a substantial increase in real terms since 2007 this has mainly been driven by increases in the cost of electricity distribution and to a lesser degree in the cost of electricity generation reducing greenhouse gas emissions which is a bipartisan political goal in australia will likely deliver further increases in generation costs due to the expected higher cost of low emission technology participating in global negotiations on emission reduction targets and designing efficient policy mechanisms have been a major focus of governments over the last several decades in contrast managing distribution system costs has received less attention while there were a number of factors which drove historical increases in distribution costs management of peak demand growth could help contain or reduce the extent to which consumers particularly households experience further increases in distribution costs the paper demonstrates how different combinations of carbon price and peak demand scenarios could impact future residential and industrial retail electricity prices to 2050 and discusses some behavioural and technological solutions to manage peak demand and potential barriers to their deployment

eua and scer phase ii price drivers unveiling the reasons for the existence of the eua scer spread abstract this article studies the price relationships between eu emissions allowances euas valid under the eu emissions trading scheme eu ets and secondary certified emissions reductions scers established from primary cers generated through the kyoto protocol s clean development mechanism cdm given the price differences between euas and scers financial and industrial operators may benefit from arbitrage strategies by buying scers and selling euas i e selling the eua scer spread to cover their compliance position as industrial operators are allowed to use scers towards compliance with their emissions cap within the european system up to 13 4 our central results show that the spread is mainly driven by eua prices and market microstructure variables and less importantly as we would expect by emissions related fundamental drivers this might be justified by the fact that the eu ets remains the greatest source of cer demand to date

on intermittent renewable generation the stability of australia s national electricity market abstract energy only markets have an inherently unstable equilibrium even under ideal conditions because participants are unable to optimise voll events the addition of intermittent renewable generation is thought to make conditions harder in this article optimal voll events in an islanded nem region is modelled by substituting high price caps for boiteux capacity charges then analysing the impact of adding progressively more variable renewable energy vre up to 35 market share spot market conditions prove stable and tractable provided thermal plant exit and adjust perfectly but vre asset allocation is important absent highly elastic demand or ultra low cost storage solar pv market share has economic limits because the technology rapidly cannibalises itself furthermore as vre rises in imperfectly interconnected regions a tipping point appears to exist where hedge markets enter an unstable zone through shortages of asset backed firm intra regional swaps and caps government initiated cfds for vre need to be designed carefully to ensure any instability is not exacerbated by extracting contracts from an already shortening hedge market

time variation in european carbon pass through rates in electricity futures prices the european union emissions trading scheme is a means to price emission allowances electricity market prices should reflect these market prices of emission allowances as they are a cost factor for power producers the pass through rate is the fraction of the emission allowance price that is passed through to electricity market prices it is often measured and presented as an average or a fixed estimate over some time period however we expect that the pass through rates should actually vary over time as electricity supply curves reflect the marginal costs of different producers that differ in emission intensity we apply a kalman filter approach to observe pass through rates in germany and u k and find strong support for time varying instead of fixed pass through rates although policy makers are interested in the impact of a policy on average our results indicate that one needs to be careful with the time frame over which pass through rates are measured for policy evaluation as an incorrect chosen evaluation period could cause an under or overestimation of the pass through rate in addition our model helps to provide policy makers with insight in the development of pass through rates when market circumstances change with respect to power production

can prospect theory be used to predict an investor s willingness to pay abstract cumulative prospect theory cpt is widely considered to be the most successful descriptive theory for decision making under risk and uncertainty sophisticated methods have been developed to reliably elicit cpt parameters on an individual basis the aim of this paper is to analyze whether such methods are suited to be applied in real world situations particularly in the context of investment counseling for retail investors specifically we examine whether cpt parameters elicited via standardized computer tools are successful in predicting an individual s preference for different structured financial products surprisingly we find only low predictive power of the elicited cpt parameters on the wtp using a second set of experiments we examine possible explanations for the low prediction quality overall we have to conclude that it is too much of a leap to draw conclusions about the attractiveness of complex financial products from cpt parameters elicited via simple lotteries

pricing effects when competitors arrive the case of discount certificates in germany this article investigates how overpricing of outstanding certificates also called master certificates changes when competing products that duplicate the features of master certificates are issued i argue that competition effects may be reverted and overpricing may increase rather than decrease after competitors arrive when retail investors fail to detect implications of credit risk differences on certificates values using difference in differences estimations on matched samples i find that overpricing of master certificates decreases after the competing products have been issued but only when the master issuer s credit risk is lower than that of the duplicate issuer while it increases when the credit risk difference is positive these findings are robust to controlling for retail investors demand in various ways thus the study indicates that retail investors failure to detect the value implications of issuers credit risk can undermine product competition

determining commercially viable two way and one way contract for difference strike prices and revenue receipts abstract in this article we investigate the role that a contract for difference cfd might play in increasing investment in renewable energy in australia two cfd schemes are investigated two way and one way cfd a financial model is developed that determines commercially viable cfd strike prices account is taken of revenue from wholesale electricity market and renewable energy certificate sales capital and operational costs of the project including distribution of funds to holders of equity and debt are also included findings based on analysis of the solar array located at the university of queensland gatton campus in australia is presented employing a typical meteorological year framework the major finding was that government will prefer a two way cfd scheme and single axis tracking solar pv array technology in contrast project proponents will strongly prefer a one way cfd design

portfolio insurance and prospect theory investors popularity and optimal design of capital protected financial products abstract portfolio insurance strategies are used on both the institutional and the retail side of the asset management industry while standard utility theory struggles to provide an explanation this study justifies the popularity of portfolio insurance strategies in a behavioral finance context we run monte carlo simulations as well as historical simulations for popular portfolio insurance strategies and benchmark strategies in order to evaluate the outcomes using cumulative prospect theory our simulation results indicate that most portfolio insurance strategies are the preferred investment strategy for a prospect theory investor moreover the analysis provides insights into how portfolio insurance products should be designed and structured to meet the preferences of prospect theory investors as accurately as possible

financing alternative energy projects an examination of challenges and opportunities for local government abstract local government in australia has a strong collective capacity to reduce ghg emissions through policies funding allocation to renewable energy projects and the delivery of programs and services this study examines the institutional capacity of councils in sydney and how this impacts on decisions to invest in alternative energy projects we find greenhouse gas emission targets of councils are strongly aligned to national targets but do not reflect the local council s institutional capacity political leadership or strategic priorities energy reduction projects are often identified and undertaken by environmental staff without support from financial staff or financial evaluation tools an absence of national guidelines to provide consistency in tracking and reporting limits cross sector benchmarking street lighting contributes to a significant proportion of council s total electricity expenditure and ghg emission profile being highly regulated existing contracts and the current practice of street lighting services limits the councils ability to reduce emissions based on our analysis we recommend a number of measures to overcome these constraints including the use of financial evaluation tools for small scale renewable energy projects a standardised national tracking and reporting platform to facilitate progress reporting and meaningful comparative analysis between councils and policy reform to the regulation of street lighting

the environmental and economic impact of the emissions trading scheme ets in vietnam abstract this study aims to fill a gap in the literature by examining the impacts of an emissions trading scheme ets in vietnam as the policy has been discussed for a decade in the country but the likely impacts on the economy and different sectors are still unidentified the simulations are carried out in a global energy computable general equilibrium cge model an extension of the gtap e model which treats vietnam as a country region results show that restricting the number of industrial sectors in the emissions trading market substantially affects the country s economy with a decline in real gdp by 4 57 however the country experiences much smaller adverse impacts e g real gdp declines by 1 78 when all industries participate in the emissions trading market in either case of the ets design the coal mining manufacturing transportation and electricity sectors are highly adversely affected however the crude oil and natural gas extraction sectors would experience expansion in their production levels due to substitutions for coal in general under the policy the emission levels from burning fossil fuels decline at significant rates particularly from the electricity generation sector

the large scale solar feed in tariff reverse auction in the australian capital territory australia abstract feed in tariffs fits offer renewable energy developers significant investor certainty but sometimes at the cost of being misaligned with generation costs reverse fit auctions where the fit rights for a predetermined capacity are auctioned can overcome this problem but can be plagued by non delivery risks particularly of competitively priced proposals in 2012 and 2013 the australian capital territory act government in australia conducted a fit reverse auction for 40 mw of large scale solar generating capacity the first such auction undertaken in the country the auction was highly competitive in relation to price and demonstrating low delivery risks proposal capital costs particularly engineering procurement and construction costs as well as internal rates of return were lower than expected the auction process revealed limited land availability for large scale solar developments in the act as well as a significant perceived sovereign risk issue the auction process was designed to mitigate non delivery risk by requiring proposals to be pre qualified on the basis of delivery risk before considering fit pricing the scheme is likely to be used by the act government to support further large scale renewable energy development as part of its greenhouse gas reduction strategy which is underpinned by a 90 per cent by 2020 renewable energy target

first evidence of asymmetric cost pass through of eu emissions allowances examining wholesale electricity prices in germany abstract we test the hypothesis that rising prices of emission allowances have a stronger impact on wholesale electricity prices than falling prices asymmetric cost pass through using an autoregressive distributed lag model we confirm this hypothesis for the german market

accounting for incomplete pass through recent theoretical work has suggested a number of potentially important factors in causing incomplete pass through of exchange rates to prices including markup adjustment local costs and barriers to price adjustment we empirically analyze the determinants of incomplete passthrough in the coee industry the observed pass through in this industry replicates key features of pass through documented in aggregate data prices respond sluggishly and incompletely to changes in costs we use microdata on sales and prices to uncover the role of markup adjustment local costs and barriers to price adjustment in determining incomplete pass through using a structural oligopoly model that nests all three potential factors the implied pricing model explains the main dynamic features of short and long run pass through local costs reduce long run pass through by a factor of 59 relative to a ces benchmark markup adjustment reduces pass through by an additional factor of 33 where the extent of markup adjustment depends on the estimated super elasticity of demand the estimated menu costs are small 0 23 of revenue and have a negligible eect on long run pass through but are quantitatively successful in explaining the delayed response of prices to costs we nd that delayed passthrough in the coee industry occurs almost entirely at the wholesale rather than the retail level

the dynamic linkage effect between energy and emissions allowances price for regional emissions trading scheme pilots in china abstract china s emissions trading scheme cets pilots are emerging and fragmented markets these emissions allowances markets may exhibit a different fundamental price process from the european union s eu and the united states us emissions trading scheme ets the dynamic linkage effects between energy and emissions allowances prices are investigated for regional ets pilots in china using cointegration techniques the empirical results confirm that in the long run coal oil and natural gas prices are the main determinant factors of regional emissions allowances prices except for the second phase beijing ets pilots however their long run cointegration relationships in the beijing and shanghai pilots are not exactly in line with the guangdong and hubei pilots in the short run the changes in oil and natural gas prices in the second phase beijing ets pilot the natural gas prices in the shanghai ets pilot and the coal prices in the hubei ets pilot are found to have significant effects on regional emissions allowances prices in china finally regional energy pricing inefficiency regional emissions trading market overreaction and their inefficient fundaments may provide major obstacles in reducing the effectiveness of the fossil energy price pass through to emissions allowances prices in regional ets pilots

the impact of carbon pricing on a closed loop supply chain an australian case study concerns about industrial and supply chain implications on our natural environment have existed for decades climate change and greenhouse gas emissions have caused countries to implement various instruments ranging from taxes permits and voluntary incentives to required regulatory policies given this environment we develop a unified optimization model for a closed loop supply chain in which the carbon emission is expressed in terms of dollar carbon cost this study is one of the first to evaluate the forward and reverse supply chain influences on the carbon footprint a comparative analysis is completed with a decomposition of cost and environmental influences across supply chain functions we utilize data from a company located in australia where the government is currently introducing a carbon pricing scheme we find that variations in cost and environmental impacts occur over ranges of carbon pricing characteristics and patterns of the numerical results over these ranges provide insights for corporate key strategies and potential additional government policies these results and implications are analyzed along with limitations and directions for future research

in the transformation of energy systems what is holding australia back abstract australia has had a strong gdp growth rate is endowed with a diversity of renewable energy resources yet has been unable to unshackle its dependency on fossil fuels our study identifies causes underlying australia s underachievement in its transformation towards a renewable energy economy we apply a combined mixed methods case study and multi criteria analysis to evaluate the greenhouse gas emissions and energy targets policies and programs of four australian prime ministers between 1996 and 2015 we identify four high impact factors that contribute to australia s underachievement the prime minister s political stance on climate and energy is critical in setting the direction of government the absence of target driven policy frameworks results in less effective policy outcomes orderly and cost effective energy system transformation requires bipartisan strategic long term planning and substantial capital investment to provide policy certainty and stability that can induce new investment in renewable technologies and industries energy policy is primarily a political and ideological issue not one driven by underlying economic conditions going forward australia must achieve a bipartisan position on climate and energy policy at both federal and state levels this will provide long term certainty and stability to support investment in renewable energy and so doing achieve international emission reduction obligations

using renewables to hedge against future electricity industry uncertainties an australian case study abstract a generation portfolio modelling was employed to assess the expected costs cost risk and emissions of different generation portfolios in the australian national electricity market nem under highly uncertain gas prices carbon pricing policy and electricity demand outcomes were modelled for 396 possible generation portfolios each with 10 000 simulations of possible fuel and carbon prices and electricity demands in 2030 the lowest expected cost generation portfolio includes 60 renewable energy increasing the renewable proportion to 75 slightly increased expected cost by 0 2 mwh but significantly decreased the standard deviation of cost representing the cost risk increasing the renewable proportion from the present 15 to 75 by 2030 is found to decrease expected wholesale electricity costs by 17 mwh fossil fuel intensive portfolios have substantial cost risk associated with high uncertainty in future gas and carbon prices renewables can effectively mitigate cost risk associated with gas and carbon price uncertainty this is found to be robust to a wide range of carbon pricing assumptions this modelling suggests that policy mechanisms to promote an increase in renewable generation towards a level of 75 by 2030 would minimise costs to consumers and mitigate the risk of extreme electricity prices due to uncertain gas and carbon prices

a structural approach to explaining incomplete exchange rate pass through and pricing to market the continuing depreciation of the dollar against other major currencies coupled with concerns about the impact of china s exchangerate policy on domestic prices has spurred new interest in the exchange rate pass through literature a recent study by economists at the federal reserve board of governors see mario marazzi et al 2005 attracted wide attention by documenting a steady decline over the past decade in the pass through of exchange rates into us import prices this finding was later challenged by a study published by the federal reserve bank of new york hellerstein deirdre daly and christina marsh 2006 which demonstrated that the finding of such a decline depends crucially on the specification of the pass through regression and in particular the inclusion of commodity prices this exchange highlights the need to understand the structural determinants of exchange rate pass through not only because such understanding is important when trying to forecast future pass through patterns but also because it provides guidance regarding the specification of the appropriate reduced form regression and more generally measurement of pass through the increased availability of micro data on prices and quantities means that research uncovering these determinants is more promising than sources of international price stickiness

an overview of co2 cost pass through to electricity prices in europe this paper investigates the link between wholesale electricity prices in europe and the co2 cost i e the price of european union allowances euas over the two first phases of the european union emissions trading scheme eu ets we set up a theoretical framework and an empirical model to estimate to what extent daily fluctuations of co2 costs may have impacted electricity prices regarding estimation results for the first phase of the eu ets about 42 of estimated pass through rates appear to be statistically significant while only one third of them are statistically different from zero in the second phase we try to improve those results by proposing alternative estimates based on the eu ets compliance periods

market power and heterogeneous pass through in german electricity retail abstract we analyze the pass through of cost changes to retail tariffs in the german electricity market over the 2007 2014 period we find an average pass through rate of around 60 this significantly varies with demand factors while the pass through rate to baseline tariffs where firms have greater market power because customers are less willing to switch is only 50 it increases to 70 in the competitive segment of the market although the pass through rate of independent firms is significantly higher than that of other firms in the competitive market segment the extent of supply side heterogeneity is limited thus the firms ability to exercise market power and reduce pass through appears to be constrained by competition and largely determined by demand side factors finally we find that the pass through rate in the competitive market segment has been approaching unity over the past years indicating a rise in competitive pressure

an alternative semiparametric approach to the modelling of asymmetric gasoline price adjustment in this paper we revisit the wholesale and retail gasoline price adjustments to fluctuations in the input cost prices for a monthly panel dataset of 48 us states over the period 1994 to 2011 in doing so we employ for the first time in the empirical literature nonlinear semiparametric models with local generalized method of moments gmm estimators our findings indicate that wholesale and retail gasoline prices adjust more rapidly in an upward than a downward direction confirming the rockets and feathers hypothesis

structural breaks and electricity prices further evidence on the role of climate policy uncertainties in the australian electricity market the primary objectives and the strategies of a national electricity market are the efficient delivery of network services and the electricity infrastructure to meet the long term consumer s interests therefore the objective of this study is to explore whether electricity prices across the six australian states display instability such instability is closely associated with the presence of structural breaks in relevance to policy events on australian carbon policies the study makes use of weekly australian wholesale electricity prices spanning the period from june 8th 2008 to march 30th 2014 along with linear and non linear unit root testing methodologies the results provide supportive evidence that the australian electricity market can be described as a less stable electricity market which implies that a high degree of market power is exercised by generators across regional markets these findings are expected to have substantial consequences for the effectiveness of carbon dioxide mitigating policies especially when there is uncertainty as to whether the planned environmental policy is put in place for the lifespan of undertaken investments