bluuebunny/crossref_metadata_2025 huggingface dataset:
An Econometric Model of Oil and Gas Exploration Development and Production in the UK Continental Shelf: A Systems Approach
Authors: Kemp Alexander , Kasim Sola
Published: May 2011

The petroleum supply process takes place in stages. Decisions at any stage are based on information obtained at the preceding stage. The present paper develops an econometric model incorporating the feedback structure of the process. The model framework consists of a system of simultaneous equations. Using UKCS data the model was estimated, tested for stability and predictive power, and used to conduct a structural analysis, investigating the effects of market conditions on activity levels in a mature hydrocarbon province. The results provide useful insights into the feedback nature of the petroleum supply process and the importance of market conditions to continued activity levels in a mature province.
A Note on the Fisher Ideal Index Decomposition for Structural Change in Energy Intensity
Authors: Boyd Gale A. , Roop Joseph M.
Published: May 2011

Index numbers have been used to decompose aggregate trends in energy intensity, i.e., the ratio of energy use to activity. By making a direct appeal to the theory underlying price index numbers used by the energy decomposition literature, this note proposes the chain weighted Fisher Ideal Index as a formula that solves the 'residual problem.' The connection to index number theory also allows us to illustrate that the measures of activity used to define energy intensity need not be additive across the sectors that are involved in the decomposition. We give an empirical example using recent U.S. manufacturing data of the Fisher Ideal Index, compared to the Törnqvist Divisia index, a popular index in the energy literature.
Charges, Costs and Market Power: the Deregulated UK Electricity Retail Market
Authors: Salies Evens , Price Catherine Waddams
Published: May 2011

The residential UK electricity market was opened for the first time in 1999, introducing choice of supplier, and about 40 percent of households changed supplier in the first four years. After three years price caps were removed. We review this process and assess the competitiveness of the market by examining how the charges levied by suppliers depend on cost and demand factors for three different payment methods and consumption levels. We also identify signs of additional market power of incumbency and the effect of levying a tariff with no fixed charge. We find that both cost and demand factors affect charges, and the relationship varies for different payment methods and consumption levels; and that tariffs with no fixed element have different effects for different payment methods. We also conclude that considerable market power seems to remain with potentially adverse distributional effects.
Trading in the Downstream European Gas Market: A Successive Oligopoly Approach
Authors: Boots Maroeska G. , Rijkers Fieke A.M. , Hobbs Benjamin F.
Published: May 2011

A model of successive oligopoly is applied to the European natural gas market. The model has a two-level structure, in which Cournot producers are also Stackelberg leaders with respect to traders, who may be Cournot oligopolists or price takers. Several conclusions emerge. First, successive oligopoly (“double marginalization”) yields higher prices and lower consumer welfare than if oligopoly exists only on one level. Second, due to the high concentration of traders, prices are distorted more by market power in trading than in production. Third, trader profits depend on whether producers can price discriminate among consuming sectors; if so, producers collect a greater share of the profits. Finally, when traders increase in number, prices approach competitive levels. Thus, it is important to prevent concentration in the downstream gas market. If oligopolistic trading cannot be prevented, vertical integration should not be discouraged, especially if it would increase the number of traders.
Implied Volatility of Oil Futures Options Surrounding OPEC Meetings
Authors: Horan Stephen M. , Peterson Jeffrey H. , Mahar James
Published: May 2011

This study examines implied volatility from options on crude oil futures surrounding OPEC meetings. Studies suggest that the implied volatility embedded in option prices should drift upward prior to scheduled information releases and drop afterward. As predicted, volatility drifts upward as the meeting approaches and drops by three percent after the first day of the meeting and by five percent over a five-day window period. Surprisingly, highly visible bi-annual conferences experience little drop in volatility. Rather, the most pronounced decline in volatility is associated with meetings of the Ministerial Monitoring Committee, which makes production recommendations to the larger conference. The results have implications for the debate about whether OPEC influences oil prices and provide an explanation for previously documented return anomalies in crude oil futures surrounding OPEC meetings.
Electricity Restructuring In Ontario
Authors: Trebilcock Michael J. , Hrab Roy
Published: May 2011

This paper examines the short-lived electricity sector restructuring initiative of the province of Ontario, Canada’s largest province. In May 2002, following years of planning and consultation Ontario opened its retail and wholesale electricity markets to competition. The summer of 2002 saw retail prices reach levels that consumers had never previously encountered. By December 2002, the provincial government froze retail electricity prices, covering approximately half of Ontario’s electricity consumption. While the weather played a significant role in driving prices higher during the summer of 2002, other factors also played a major role. The other factors reviewed in this paper fall into two categories. The first category consists of market design problems, such as market rules (e.g., trading arrangements) and market structure (e.g., the degree of competition in the generation sector). The second category covers political economy problems, in particular the lack of political will to allow retail prices to reflect wholesale prices and to address effectively structural problems in the sector. Finally, this paper examines some of the new restructuring initiatives being pursued by the recently elected provincial government of Ontario as the province continues to struggle to bring order to its electricity sector.
Why Tax Energy? Towards a More Rational Policy
Authors: Newbery David M.
Published: May 2011

The same fuels are taxed at widely different rates in different countries while different fuels are taxed at widely different rates within and across countries. This paper considers what tax theory has to say about efficient energy tax design. The main factors for energy taxes are the optimal tariff argument, the need to correct externalities such as global warming, and second-best considerations for taxing transport fuels as road charges, but these are inadequate to explain current energy taxes. EU energy tax harmonisation and Kyoto suggest that the time is ripe to reform energy taxation.
Should Developing Countries Take on Binding Commitments in a Climate Agreement? An Assessment of Gains and Uncertainty*
Authors: Kallbekken Steffen , Westskog Hege
Published: May 2011

In this paper we explore whether efficiency gains obtained by developing countries participation in emission trading could offset the economic risks that would be incurred by taking on binding commitments when future emissions are uncertain. Such commitments would allow developing countries to participate in emissions trading, which has significantly lower transaction costs than the present Clean Development Mechanism (CDM). However, because future emissions cannot be known, commitments can become more costly for the developing countries than expected. Using a dynamic computable general equilibrium model, we analyse whether the efficiency gains obtained by participating in emissions trading can offset this risk. We find that the efficiency gains that can be obtained by developing countries might not be very large compared to the risks they incur. Developing countries might therefore have good reasons not to embrace binding commitments in order to participate in “cap and trade” emissions trading.
A Note on Trends in European Industrial Pollution Intensities: A Divisia Index Approach
Authors: Cole Matthew A. , Elliott Robert J.R. , Shimamoto Kenichi
Published: May 2011

This paper attempts to identify whether declining industrial pollution intensities in many European countries are a result of reductions in sectoral emissions intensities (i.e. the effects of regulations and technology) or changes to the product mix (e.g. the decline of heavy industries). This distinction is important since reductions in pollution that are a result of changes to the product mix may simply reflect a transfer ofpollutionfrom one country to another, rather than a net reduction. We attempt to resolve this issue by applying the divisia decomposition technique to a new dataset of industry-specific emissions intensities for three common air pollutants, for four European countries. Our results generally indicate the dominance of the sectoral intensity effect although, for the UK in particular, evidence of an increasingly clean product mix is found.
Econometric Benchmarking of Cost Performance: The Case of U.S. Power Distributors
Authors: Lowry Mark Newton , Getachew Lullit , Hovde David
Published: May 2011

Benchmarking of cost efficiency has growing use in energy utility regulation. The state of the art has been limited in many countries by the small size of available national data sets and poor data on capital cost. Data available in the United States place fewer constraints on benchmarking methods. This paper develops an econometric cost benchmarking model for power distribution that is based on U.S. data. The model can address total cost and its major components. Numerous cost drivers are identified. Statistical tests of efficiency hypotheses are performed. The cost performances of utilities are compared to the industry norm. The suitability of the alternative frontier standard in regulatory applications is discussed.
The Long-Run Efficiency of Real-Time Electricity Pricing
Authors: Borenstein Severin
Published: May 2011

Retail real-time pricing (RTP) of electricity - retail pricing that changes hourly to reflect the changing supply/demand balance - is very appealing to economists because it “sends the right price signals" Economic efficiency gains from RTP, however, are often confused with the short-term wealth transfers from producers to consumers that RTP can create. Abstracting from transfers, I focus on the long-run efficiency gains from adopting RTP in a competitive electricity market. Using simple simulations with realistic parameters, I demonstrate that the magnitude of efficiency gains from RTP is likely to be significant even if demand shows very little elasticity. I also show that “time-of-use" pricing, a simple peak and off-peak pricing system, is likely to capture a very small share of the efficiency gains that RTP offers.
Systematic Features of High-Frequency Volatility in Australian Electricity Markets: Intraday Patterns, Information Arrival and Calendar Effects
Authors: Higgs Helen , Worthington Andrew C.
Published: May 2011

This paper investigates the intraday price volatility process in four Australian wholesale electricity markets; namely New South Wales, Queensland, South Australia and Victoria. The data set consists of half-hourly electricity prices and demand volumes over the period January 1, 2002 to June 1, 2003. A range of processes including GARCH, RiskMetrics, normal Asymmetric Power ARCH or APARCH, Student APARCH and skewed Student APARCH are used to model the time-varying variance in prices and the inclusion of news arrival as proxied by the contemporaneous volume of demand, time-of-day, day-of-week and month-of-year effects as exogenous explanatory variables. The skewed Student APARCH model, which takes account of right skewed and fat tailed characteristics, produces the best results in all four markets. The results indicate significant innovation (ARCH effects) and volatility (GARCH effects) spillovers in the conditional standard deviation equation, even with market and calendar effects included. Intraday prices also exhibit significant asymmetric responses of volatility to the flow of information.
Decentralizing a Regulatory Standard Expressed in Ratio or Intensity Form
Authors: McKitrick Ross
Published: May 2011

It is well-known that economic instruments like taxes and tradable permits can improve the efficiency of attaining a target expressed in terms of a single variable, but many energy and environmental regulations are expressed as a ratio of two variables, for instance, as emissions intensity (tons per unit output) or as a renewables requirement (percentage from wind, biomass, etc.). It has been shown previously that conventional formulas for cost-efficiency do not work in this case. This paper shows that even if conventional permit trading is used, the cost-effective implementation is unlikely to be achieved. Alternative rules are presented that permit decentralized market-based implementation of ratio standards to achieve a cost-effective implementation of a ratio standard.
Electricity liberalisation in Britain: The quest for a satisfactory wholesale market design
Authors: Newbery David
Published: May 2011

Britain was the exemplar of electricity market reform, demonstrating the importance of ownership unbundling and workable competition in generation and supply. Privatisation created de facto duopolies that supported increasing price-cost margins and induced excessive (English) entry. Concentration was ended by trading horizontal for vertical integration in subsequent mergers. Competition arrived just as the Pool was replaced by New Electricity Trading Arrangements (NETA) intended to address its claimed shortcomings. NETA cost over £700 million, and had ambiguous market impacts. Prices fell dramatically as a result of (pre-NETA) competition, generating companies withdrew plant, causing fears about security of supply and a subsequent widening of price-cost margins.
Liberalizing the Dutch Electricity Market: 1998-2004
Authors: Damme Eric van
Published: May 2011

We describe the evolution of the structure of the Dutch electricity market since the E-Act 1998 that implemented the first EU Electricity Directive. The initial idea of the government was to combine liberalization in supply with concentration in generation, with the attempt to create a national champion that could compete on the European market. As the producers could not agree, the attempt failed and competition could develop. The production side now is less concentrated than in several other EU countries and the competition authority has played an active role in keeping it that way, among others by means of its intelligent analysis of the Nuon-Reliant merger, in which a VPP auction was proposed as a remedy. In contrast, regulation of the network business cannot be considered a success as bad drafting of the law prevented effective incentive regulation. Finally, the liberalization of the retail market for green energy, in effect since July 2001, has shown that retail competition may not yield many consumer benefits.
Markets for Power in the United States: An Interim Assessment
Authors: Joskow Paul L.
Published: May 2011

The transition to competitive wholesale and retail markets for electricity in the U.S. has been a difficult and contentious process. This paper examines the progress that has been made in the evolution of wholesale and retail electricity market institutions. Various indicia of the performance of these market institutions are presented and discussed. Significant progress has been made on the wholesale competition front but major challenges must still be confronted. The framework for supporting retail competition has been less successful, especially for small customers. Empirical evidence suggests that well-designed competitive market reforms have led to performance improvements in a number of dimensions and benefited customers through lower retail prices.
A Real Options Approach to Evaluating New Nuclear Power Plants
Authors: Rothwell Geoffrey
Published: May 2011

Although nuclear power plants are being built in Asia, they have not been ordered in the U.S. since the 1979 accident at Three Mile Island. For many reasons, new attention is being given to light water reactors. Currently- operating nuclear power plants in the U.S. were built under rate-of-return regulation. Now, new nuclear power plants must compete in power markets. This paper models the net present value of building an Advanced Boiling Water Reactor in Texas using a real options approach to determine the risk premium associated with net revenue uncertainty. It finds that a cost of about $1,200 per kilowatt-electric (including financing costs) for advanced light water nuclear power plants could trigger new orders. On the other hand, owner-operators might be willing to pay higher prices for nuclear megawatts if methods for mitigating price, cost, and capacity risk through contracts or real assets could be found.
Achieving Gasoline Price Stability in the U.S.: A Modest Proposal
Authors: LeClair Mark S.
Published: May 2011

The recent volatility of short-run gasoline prices in the United States has resulted in calls for the government to intervene. This paper details a simple means of reducing that variability, utilizing federal tax policies, without eliminating the signaling role of prices in the medium- to long-term. If properly implemented, the gyrations in gas prices could be largely removed, with little impact on the revenue that the federal government generates through taxation. If applied to the markets in nations that have significantly higher gasoline taxes, essentially all price volatility could be removed.
A Note on Price Asymmetry as Induced Technical Change
Authors: Huntington Hillard G.
Published: May 2011

This note evaluates whether fixed time effects (yearly dummy variables) are a better representation than separate price-decomposition terms for induced technical change in energy and oil demand. Fixed time effects are a proxy for all omitted variables that change similarly over time for all countries. Many of these omitted variables have little relevance to technical change. Empirically, statistical tests applied to previous studies reject an important premise of the fixed-time-effect model that energy or oil demand responds symmetrically to price increases and decreases. Moreover, when price-decomposition techniques allow for price-asymmetric responses, the estimated income elasticities are not dramaticalxly different from their fixed-time-effect counterparts, as it is sometimes alleged. There are also practical reasons for choosing models that allow for asymmetric responses to price, especially when evaluating the long-run implications of a number of important energy and environmental issues.
The Timing of Biological Carbon Sequestration and Carbon Abatement in the Energy Sector Under Optimal Strategies Against Climate Risks
Authors: Gitz Vincent , Hourcade Jean-Charles , Ciais Philippe
Published: May 2011

This paper addresses the timing of the use of biological carbon sequestration and its capacity to alleviate the carbon constraint on the energy sector. We constructed a stochastic optimal control model balancing the costs of fossil emission abatement, the opportunity costs of lands allocated to afforestation, and the costs of uncertain climate damages. We show that a minor part of the sequestration potential should start immediately as a “brake”, slowing down both the rate of growth of concentrations and the rate of abatement in the energy sector, thus increasing the option value of the emission trajectories. But, most of the potential is put in reserve to be used as a “safety valve” after the resolution of uncertainty, if a higher and faster decarbonization is required: sequestration cuts off the peaks of costs of fossil abatement and postpones the pivoting of the energy system by up to two decades.
Modeling Economy-wide vs Sectoral Climate Policies Using Combined Aggregate-Sectoral Models
Authors: Pizer William , Burtraw Dallas , Harrington Winston , Newell Richard , Sanchirico James
Published: May 2011

Economic analyses of climate change policies frequently focus on reductions of energy-related carbon dioxide emissions via market-based, economy-wide policies. The current course of environment and energy policy debate in the United States, however, suggests an alternative outcome: sector-based and/or inefficiently designed policies. This paper uses a collection of specialized, sector-based models in conjunction with a computable general equilibrium model of the economy to examine and compare these policies at an aggregate level. We examine the relative cost of different policies designed to achieve the same quantity of emission reductions. We find that excluding a limited number of sectors from an economy-wide policy does not significantly raise costs. Focusing policy solely on the electricity and transportation sectors doubles costs, however, and using non-market policies can raise cost by a factor of ten. These results are driven in part by, and are sensitive to, our modeling of pre-existing tax distortions.
Customer Response to RTP in Competitive Markets: A Study of Niagara Mohawk’s Standard Offer Tariff
Authors: Boisvert Richard N. , Cappers Peter , Goldman Charles , Neenan Bernie , Hopper Nicole
Published: May 2011

Utilizing load, price, and survey data for 119 large customers that paid competitively determined hourly electricity prices announced the previous day between 2000 and 2004, this study provides insight into the factors that determine the intensity of price response. Peak and off-peak electricity can be: perfect complements, substitutes, or substitutes where high peak prices cause temporary disconnection from the grid, as for some firms with on-site generation. The average elasticity of substitution is 0.11. Thirty percent of the customers use peak and off-peak electricity in fixed proportions. The 18% with elasticities greater than 0.10 provide 75% of the aggregate price response. In contrast to Industrial customers, Commercial/Retail and Government/Education customers are more price responsive on hot days and when the ratio of peak to off-peak prices is high. Price responsiveness is not substantially reduced when customers operate near peak usage. Diversity of customer circumstances and price response suggest dynamic pricing is suited for some, but not all customers.
Measuring Potential Gains from Mergers among Electricity Distribution Companies in Tiirkey using a Non-Parametric Model
Authors: Bagdadioglu Necmiddin , Price Catherine Waddams , Weyman-Jones Thomas
Published: May 2011

Turkish electricity reform is entering a new phase through the Turkish Government’s proposal to create 21 new distribution companies, 18 of them by m erger. Two aspects of merger analysis are the operational cost savings and the potential production efficiency gains. This paper concentrates on the secondaspect and uses a recently developed methodology to assess the potential effect of these mergers and whether these mergers are efficiency enhancing. This is performed by comparing the actual efficiency levels of observed distribution companies with the merger of proposed aggregated companies. The model is calibrated on panel data from 1999 to 2003 which include m easures of physical capital and labor inputs, as well as customer and energy related outputs. The results indicate potential for considerable efficiency gains from the proposed mergers.
ELECTRICITY LIBERALIZATION IN THE EUROPEAN UNION: BALANCING BENEFITS AND RISKS
Authors: Percebois Jacques
Published: May 2011

The electricity liberalization is contested by many European consumers who hold it responsible for the electricity price increase, but such a conclusion is questionable. As the various spot markets are connected, liberalization will imply a convergence of electricity prices for all European countries if any congestion is observed on the networks. We observe today that German gas power stations are often “marginal power stationsthus the German spot market is often the price maker. High price for oil means high price for natural gas and indirectly high price for electricity. Moreover increasing interconnection of electricity markets leads to surplus transfers among European consumers and producers of electricity. But for some people the price increase observed today results also partly from a rise in the market power of electricity producers. This paper examines the position of the main European incumbents in this field.
The Impact of Automobile Diffusion on the Income Elasticity of Motor Fuel Demand
Authors: Lescaroux Frangois , Rech Olivier
Published: May 2011

Prompted by the recent surge in light oil product consumption, this paper analyses the demand for non-commercial motor fuel and proposes a long-run forecasting model. In doing so, our aim is to be able to reproduce a few key stylized facts observed in secular evolutions of the motor fuel intensity of GDP and related notably to the derived nature of oil demand. Using a database covering 77 countries over the 1986-1998 period, we explain sequentially the stock of private vehicles per capita and fuel consumption per vehicle. The former is expressed as an S-shaped function of real per-capita income, which takes into account the dynamics specific to the dissemination of a durable good in a population. By explicitly considering the distinct phases of the development of the automobile market, our approach enables us to propose an explanation to the space-time variability in long-run income elasticities reported in the literature - especially its decline as per-capita income increases and the resulting gap between elasticities in emerging countries compared to developed countries. Our two-equation model also enables us to reproduce the “bell” shaped curve of the motor fuel intensity of GDP as a function of per-capita income, as well as the other principal properties of resource intensity-of-use linked to the process of dematerialization which, for any country, follows the industrialization period.
Do Prices for Petroleum Products Converge in a Unified Europe with Non-Harmonized Tax Rates?
Authors: Dreher Axel , Krieger Tim
Published: May 2011

The paper presents panel unit root tests for price convergence of different petroleum products over the last decade. We distinguish consumer and producer price convergence and test for the absolute versus relative version of the law of one price. Comparing the speed of convergence as well as its development over time indicates that price arbitrage in the common EU markets is not sufficiently strong to level the price differentials, mainly caused by different excise taxation. We show that taxation alone leads to market segmentation and that discretionary national tax policy by EU member states is not (yet) threatened by the observable level of cross-border shopping.
Large Oil Shocks and the US Economy: Infrequent Incidents with Large Effects
Authors: Gronwald Marc
Published: May 2011

This paper considers the macroeconomics of the oil price for the United States. It investigates the impact of large oil price hikes in a standard VAR framework by introducing a new Markov switching based oil price specification. The explanatory power of this new specification is compared to that of a number of prominent non-linear specifications. The key findings are: (1) the new oil price specification is appropriate in both empirical and theoretical terms and allows for a well-founded distinction between “large” and “normal” oil price increases. (2) The observed impact of oil price shocks on real GDP growth is largely attributable to no fewer than three large oil price increases, namely those of 1973-74, 1979 and 1991, while variables such as consumer and import prices are also affected by normal oil price increases.
What Drives Natural Gas Prices?
Authors: Brown Stephen P.A. , Yttcel Mine K.
Published: May 2011

For many years, fuel switching between natural gas and residual fuel oil kept natural gas prices closely aligned with those for crude oil. More recently, however, the number of U.S. facilities able to switch between natural gas and residual fuel oil has declined, and over the past seven years, U.S. natural gas prices have been on an upward trend with crude oil prices but with considerable independent movement. Natural gas market analysts generally emphasize weather and inventories as drivers of natural gas prices. Using an error-correction model, we show that when these and other additional factors are taken into account, movements in crude oil prices have a prominent role in shaping natural gas prices. Our findings imply a continuum of prices at which natural gas and petroleum products are substitutes.
Modeling Peak Oil
Authors: Holland Stephen P.
Published: May 2011

“Peak oil” refers to the future decline in world production of crude oil and to the accompanying potentially calamitous effects. The majority of the literature on peak oil is non-economic and ignores price effects even when analyzing policies. Unfortunately, most economic models of depletable resources do not generate production peaks. I present four models which generate production peaks in equilibrium. Production increases in the models are driven by: demand increases, cost reductions through advancing technology, cost reductions through reserve additions, and production capacity increases through site development. Production decreases are driven by scarcity. The models do not rely on market failures and indicate that a peak in production may arise from efficient intertemporal optimization. The models show that prices are a better indicator of impending scarcity than peaking is and that peak production can occur when any percentage from 0-100% of the original deposit remains.
Impacts of Responsive Load in PJM: Load Shifting and Real Time Pricing
Authors: Spees Kathleen , Lave Lester
Published: May 2011

In PJM, 15% of electric generation capacity ran less than 96 hours, 1.1% of the time, over 2006. If retail prices reflected hourly wholesale market prices, customers would shift consumption away from peak hours and installed capacity could drop. We use PJM data to estimate consumer and producer savings from a change toward real-time pricing (RTP) or time-of-use (TOU) pricing. Surprisingly, neither RTP nor TOU has much effect on average price under plausible short-term consumer responses. Consumer plus producer surplus rises 2.8%-4.4% with RTP and 0.6%-1.0% with TOU. Peak capacity savings are seven times larger with RTP. Peak load drops by 10.4%-17.7% with RTP and only 1.1%-2.4% with TOU. Half of all possible customer savings from load shifting are obtained by shifting only 1.7% of all MWh to another time of day, indicating that only the largest customers need be responsive to get the majority of the short-run savings.
Combined Heat and Power in Commercial Buildings: Investment and Risk Analysis
Authors: Maribu Karl Magnus , Fleten Stein-Erik
Published: May 2011

Combined heat and power (CHP) systems can generate electricity locally while they recover heat to satisfy heating loads in buildings, which means they provide efficient energy. On-site generators may reduce both the expected energy costs and cost risk exposure for developers. With volatile energy prices, a deterministic modeling framework will not yield a fair value of CHP systems because flexibility in the operational response to price changes is not taken into account. In this paper, we present a Monte Carlo simulation model that is used to find the CHP value under uncertain future wholesale electricity and natural gas prices. When considering investing in a CHP system on should consider both return and risk. Clearly, both investment return and risk depend on local energy tariffs and energy loads. We highlight an example where CHP is marginally profitable and the investment decision is not straightforward. Interestingly, CHP systems were found particularly attractive with volatile electricity prices because their ability to respond to high prices provides efficient hedges to energy cost risk. Therefore, developers should not be discouraged but rather embrace onsite generation in markets with volatile prices. From the analysis, it can also be concluded that sizing of CHP systems can be related to the energy tariff structure and cost risk preferences as well as to energy loads.
Impacts of Market-based Environmental and Generation Policy on Scrubber Electricity Usage
Authors: Bellas Allen , Lange Ian
Published: May 2011

The introduction of scrubbers as a means of controlling sulfur dioxide (SO2) emissions from stationary sources coincided with the implementation of the Clean Air Act of 1970. Since that time, there have been many policy changes affecting the electricity generation industry. These changes can be characterized as moving from direct regulation toward market-based incentives, both in deregulation or restructuring of power markets and adoption of market-based environmental regulation. These changes provide natural experiments for investigating whether the form of regulation can alter the rate of technological progress. This paper analyzes changes in scrubbers’ use of electricity (also known as parasitic load) in relation to regulatory policy regimes. Results show that restructured electricity markets led to innovations that reduced parasitic load considerably (35-45%). Conversely, the change to a cap-and-trade system for SO2 has not led to similar reductions.
Reserve Prices and Mineral Resource Theory
Authors: Adelman M.A. , Watkins G.C.
Published: May 2011

SURVIVOR’S NOTE. Gordon Campbell Watkins was my friend for forty years. He freed me, as the Scots poet says, from many a blunder and foolish notion. We joined forces twenty years ago, when the basic data on hydrocarbon scarcity were starting to disappear. (Adelman and Watkins, 1996). A revised updated version was given in 2002 at an IAEE session in Prague. The last paper of our last effort follows, delayed by his death and my ailments.

We are indebted to the Center for Energy and Environmental Policy Research at MIT for continuing aid. Without Therese Henderson and Jeanette Ehrman, the work could not have been completed. Errors in this final revision are mine alone.

M. A. Adelman
Modeling Energy Use and Technological Change for Policy Makers: Campbell Watkins’ Contribution as a Researcher-Practitioner
Authors: Jaccard Mark
Published: May 2011

As an energy-economics modeler, who collaborated with academics while also consulting to government and industry, Campbell Watkins was especially interested in the empirical relationship between energy inputs and economic output. His skills were perfectly suited to this pressing research issue, which first emerged in the mid-1970s as the “energy-capital substitution” controversy. As his publication record shows, he worked with leading researchers in the development and econometric testing of dynamic specifications of this relationship. But he conducted this work always with a concern for how the research might be useful for immediate policy decisions. Today, the key policy question is the extent to which humanity can reduce its energy-related greenhouse gas emissions at reasonable cost. A new generation of “hybrid, top-down/bottom-up” models attempts to address the objectives Campbell listed in his widely circulated 1992 book chapter, particularly his point that technological change should not be treated as completely exogenous, but at least in part as a very long-run response to price changes and policies. But while current energy models are increasingly constructed to incorporate this feedback effect

- notably those models used for simulating climate policies - the empirical estimation of their key parameters is still in its infancy. As Campbell noted in his characteristic dry humor, the scope for research remains “undiminished.” More hard-nosed researcher-practitioners like Campbell would certainly help.
Managing a Portfolio of Real Options: Sequential Exploration of Dependent Prospects
Authors: Smith James L. , Thompson Rex
Published: May 2011

We consider the impact of sequential investment and active management on the value of a portfolio of real options. The options are assumed to be interdependent, in that exercise of any one is assumed to produce, in addition to some intrinsic value based on an underlying asset, further information regarding the values of other options based on related assets. We couch the problem in terms of oil exploration, where a discrete number of related geological prospects are available for drilling, and management’s objective is to maximize the expected value of the combined exploration campaign. Management’s task is complex because the expected value of the investment sequence depends on the order in which options are exercised.

A basic conclusion is that, although dependence increases the variance of potential outcomes, it also increases the expected value of the embedded portfolio of options and magnifies the value of optimal management. Stochastic dynamic programming techniques may be used to establish the optimal sequence of investment. Given plausible restrictions on the information structure, however, we demonstrate that the optimal dynamic program can be identified and implemented by policies that are relatively simple to execute. In other words, we provide sufficient conditions for the optimality of intuitive decision rules, like “biggest first,” “most likely first,” or “greatest intrinsic value first.” We also develop exact analytic expressions for the implied value of the portfolio, which permits the value of active management to be assessed directly.
New Entrant and Closure Provisions: How do they Distort?
Authors: Denny Ellerman A.
Published: May 2011

Provisions to endow new entrants with free allowances and to require closed facilities to forfeit allowance endowments are ubiquitous in the EU Emissions Trading Scheme, but a new design feature in cap-and-trade systems. This essay seeks to explore, within a comparative statics framework, the effect of these provisions on agent behavior in output and emissions markets assuming profit maximization. The main conclusion is that the principal effect is on capacity. The effect of the resulting over-capacity on output markets is to reduce output price and to increase output. The effect on emissions markets is more ambiguous in that it depends on the emission characteristics of the new capacity, existing capacity, and the capacity not retired, and the distribution of the excess capacity among these categories.
Electricity Wholesale Markets: Designs Now and in a Low-carbon Future
Authors: Green Richard
Published: May 2011

This paper compares electricity wholesale markets in the United States and Europe. The Standard Market Design in the US involves an independent system operator, nodal pricing with financial transmission rights, and integrated markets for capacity and ancillary services. In Europe, there are national, or occasionally zonal, spot markets run by companies independent of the transmission operator, and of the latter’s purchases of ancillary services. As the amount of low-carbon generation increases, prices and transmission constraints are likely to become more volatile, increasing the need to adopt an efficient market design. In most respects, the US standard market design is likely to give better results than the European models.
Reducing the Economic Impacts of Oil Supply Interruptions: An International Perspective
Authors: Rowen Henry S. , Weyant John P.
Published: May 2011

Several circumstances could lead to deep and extended interruptions of the world's supply of oil during the 1980s. The range of potential interruptions includes those on the scale experienced in 1973-74 and 1979-80 but is not limited to them. Much deeper and longer interruptions may occur or be threatened.
Changes in Regional Economic Capacity Due to Projected Energy Price Changes
Authors: Bjornstad D. J.
Published: May 2011

Though it is commonly recognized that changing energy prices will alter economic relationships among regions, there is a paucity of evidence upon which to predict the likely magnitude of these impacts. Much subnational energy-related research has concerned itself with the technical and behavioral parameters that describe quantities of energy demanded and supplied.
Response of Industrial and Commercial Customers to Time-of-Use Rates
Authors: Brzycki James J. , Frederick Arlyn C.
Published: May 2011

In their article "Industrial and Commercial Demand for Electricity by Time of Day: A California Case Study," Chinbang Chung and Dennis J. Aigner present an econometric model of industrial demand for electricity by time of day and attempt to estimate relevant price elasticities.
Public Utility Commission Regulation: Performance, Determinants, and Energy Policy Impacts
Authors: Navarro Peter
Published: May 2011

Recent theoretical and empirical research has focused on the effect of public utility commission (PUC) regulation and its associated "regulatory climate" on the cost and availability of capital to regulated investor-owned electric utilities. These studies show that in general, the more unfavorable the regulatory climate, the higher the cost and the less available is external financing to the regulatees in a PUC jurisdiction.
Energy Efficiency and Productive Efficiency: Some Thoughts Based on American Experience
Authors: Schurr Sam H.
Published: May 2011

I am greatly honored to be the first recipient of the IAEE awards for contributions to the literature of energy economics and for service to the profession, and I want to express my deep apprecia- tion to the membership of the Association. The awards citation was very generous. Its reference to my early work in energy economics as having made fundamental contributions to the literature makes me less apologetic than might otherwise be the case for using this occasion to revisit (and partially update) some research that was first written up in a book published more than 20 years ago. Those findings, it seems to me, carry lessons for understanding problems that confront us today, perhaps even more so now than in the comparatively tran- quil U.S, energy setting of the mid-1950s, when my colleagues and I were originally doing the research.
Sources of Productivity Decline in U.S. Coal Mining, 1972-1977
Authors: Kruvant William J. , Moody Carlisle E. , Valentine Patrick L.
Published: May 2011

In this paper we estimate production functions for surface and underground coal mines. These production functions are then used to estimate individual mine productivity, to explain productivity differentials across mines, and to assess the importance of several assumed sources of productivity decline in this industry. For readers not familiar with coal-mining operations, we first present a summary discussion of coal-mining technology.
The Gordian Knot of Natural Gas Prices
Authors: Jacoby Henry D. , Wright Arthur W.
Published: May 2011

Federal policy toward natural gas prices is once again the subject of national debate. Thought to be settled once and for all by the Natural Gas Policy Act of 1978 (NGPA), it reemerged as an issue in 1981. The proximate causes of the renewed controversy included candidate Ronald Reagan's campaign promise to seek wellhead price decontrol, and the Reagan administration's attempts (until March 1982) to find a workable decontrol proposal. But the wellsprings of the problem go deeper than this, to the history of gas price regulation, to changes in energy markets since 1978, and to serious defects in the NGPA itself.
The Effects of Decontrol Policy Options
Authors: Muzzo Steven E.
Published: May 2011

Over the past nine or so years, the United States has focused a large portion of its national attention on energy concerns. Indeed, the world economy is in the midst of an economic revolution over the value of one of its most important inputs. A new economic reality-that once cheap energy sources that fuel the world economy are becoming more and more expensive-has forced much of the world, and especially the United States, to reevaluate its policies on energy sources and uses.
The Decline and Fall of Regulation in the Natural Gas Industry
Authors: Tussing Arlon R. , Barlow Connie C.
Published: May 2011

A theme that runs through the long, convoluted history of natural gas regulation is the seemingly inexorable expansion of government intervention. Regulation has spawned further regulation; soon after one regulatory gap was filled, another appeared. Municipal franchising and price regulation of gas distributors led to state oversight of intrastate gas transmission, which prompted federal regulation of interstate transmission, followed by control of interstate affiliated field prices and later interstate independent field prices. Finally, the Natural Gas Policy Act of 1978 (NGPA) extended federal jurisdiction to all intrastate field sales.
Oil Price Shocks and Real GDP Growth: Testing for Non-linearity
Authors: Jiménez-Rodríguez Rebeca
Published: May 2011

This paper presents evidence of a non-linear relationship between real GDP growth and oil price changes for the US economy. We also argue that this non-linearity is not merely due to the use of data from the mid-1980s onwards, as most authors, so far, seem to believe. In fact, we find the existence of non-linearity with the use of data earlier than 1984, and even before 1977. Furthermore, we question that the non-linear transformations of oil prices proposed in the literature are the most appropriate ones for reflecting such non-linearity.
It Never Rains but it Pours: Modeling the Persistence of Spikes in Electricity Prices
Authors: Christensen Timothy , Hurn Stan , Lindsay Kenneth
Published: May 2011

During periods of market stress, electricity prices can rise dramatically. This paper treats these abnormal episodes or price spikes as count events and attempts to build a model of the spiking process. By contrast to the existing literature, which either ignores temporal dependence in the spiking process or attempts to model the dependence solely in terms of deterministic variables (like seasonal and day of the week effects), this paper argues that persistence in the spiking process is an important factor in building an effective model. A Poisson autoregressive framework is proposed in which price spikes occur as a result of the latent arrival and survival of system stresses. This formulation captures the salient features of the process adequately, and yields forecasts of price spikes that are superior to those obtained from naïve models that do not account for persistence in the spiking process.
An Assessment of the Inflationary Impact of Oil Shocks in the Euro Area
Authors: Jacquinot Pascal , Kuismanen Mika , Mestre Ricardo , Spitzer Martin
Published: May 2011

This paper explores the links between oil prices and inflation in the euro area by means of a DSGE model reflecting the structure of the energy markets in the euro area and calibrated to match the data using reduced-form time series techniques. The analysis focuses on the impact on inflation (through the Harmonised Index of Consumer Prices (HICP) and its energy component) in the short and medium run. The main conclusion is that, in the short term, changes in oil prices are of vital importance for the understanding of inflation, but that at longer horizons their impact on inflation is much more complex and depends on the initial shock. An analysis of the sources of oil price increases remains therefore a pre-requisite for a proper understanding of historical fluctuations of oil prices and the related developments in the euro area, and for drawing policy conclusions.