bluuebunny/crossref_metadata_2025 huggingface dataset:
Productivity Trends in India’s Energy Intensive Industries
Authors: Roy Joyashree , Sathaye Jayant , Sanstad Alan , Mongia Puran , Schumacher Katja
Published: May 2011

This paper reports on an analysis of productivity growth and input trends in six energy intensive sectors of the Indian economy, using growth accounting and econometric methods. The econometric work estimates rates and factor price biases of technological change using a translog production model with an explicit relationship defined for technological change. Estimates of ownprice responses indicate that raising energy prices would be an effective carbon abatement policy for India. At the same time, our results suggest that, as with previous findings on the U.S. economy, such policies in India could have negative long run effects on productivity in these sectors. Inter-input substitution possibilities are relatively weak, so that such policies might have negative short and medium term effects on sectoral growth. Our study provides information relevant for the analysis of costs and benefits of carbon abatement policies applied to India and thus contributes to the emerging body of modeling and analysis of global climate policy.
Vehicle Choice in an Aging Population: Some Insights from a Stated Preference Survey for California
Authors: Kavalec Chris
Published: May 2011

This paper investigates the potential effects that an aging "baby boomer" generation will have on gasoline use through their vehicle choice decisions. The study uses stated preference data for both conventional and alternative fuel vehicles, and measures the impact of age of survey respondent on the perceived value of vehicle characteristics such as fuel economy, performance, and body style (e.g., car vs. truck). The results suggest the possibility that average fleet fuel economy may improve in the next few years, if survey preferences translate to actual purchase behavior. No clear implications can be drawn regarding the demand for alternative fuel vehicles.
A Note: Will Tomorrow’s Energy Efficiency Indices Prove Useful in Economic Studies?
Authors: Zarnikau Jay
Published: May 2011

Recent attempts to construct national energy efficiency indices begin with the construction of "Btu aggregates" which are developed by adding together different energy resources based on their heating potential values or the heating values of the primary energy resources used to produce the energy resources which are ultimately consumed. The resulting indices may be of limited use in economic studies, where it is often important to consider the relative economic value of various component resources and their substitutability in response to relative price changes. In such applications, But aggregates will tend to suggest greater achievements in energy efficiency during periods of electrification than would an approach which aggregates different energy resources based on their market values.
Market Power in Electricity Markets: Beyond Concentration Measures
Authors: Borenstein Severin , Bushnell James , Knittel Christopher R.
Published: May 2011

The wave of electricity market restructuring both within the United States and abroad has brought the issue of horizontal market power to the forefront of energy policy. Traditionally, estimation and prediction of market power has relied heavily on concentration measures. In this paper, we discuss the weaknesses of concentration measures as a viable measure of market power in the electricity industry, and we propose an alternative method based oil market simulations that take advantage of existing plant level data. We discuss results from previous studies the authors have performed, and present new results that allow for the detection of threshold demand levels where market power is likely to be a problem. In addition, we analyze the impact of that recent divestitures in the California electricity market will have on estimated market power. We close with a discussion of the policy implications of the results.
The Efficiency of Multi-Unit Electricity Auctions
Authors: Elmaghraby Wedad , Oren Shmuel S.
Published: May 2011

Using a complete information game-theoretic model, we analyze the performance of different electricity auction structures in attaining efficiency (i. e., least-cost dispatch). We find that an auction structure where generators are allowed to bid for load "slices" outperforms an auction structure where generators submit bids for different hours in the day.
Household Response to Incentive Payments for Load Shifting: A Japanese Time-of-Day Electricity Pricing Experiment
Authors: Matsukawa Isamu , Asano Hiroshi , Kakimoto Hitoshi
Published: May 2011

We measure the effect of incentive payments on residential time-of-day (TOD) electricity demand in summer, using data from a residential TOD electricity pricing experiment in the Kyushu region of southern Japan. During the experiment, participating households could receive incentive payments if they reduce their peak usage share. Results based on an econometric model indicate that households have shifted their electricity usage from peak to off-peak periods in response to the incentive payment, but the effect of the incentive payment on load shifting was modest.
Technology and the Exploratory Success Rate in the U.S. Offshore
Authors: Forbes Kevin F. , Zampelli Ernest M.
Published: May 2011

Over the last 20 years, the offshore exploratory success rate has more than doubled for a group of large producers which includes Exxon, Shell, Mobil, and Texaco, according to the U.S. Energy Information Administration (EIA). It is tempting to conclude that this increase can be attributed to the many advances in seismic and drilling technologies that have occurred over the same period. However, such a conclusion may be premature given that much of the increase in the success rate occurred in the late 1970s and early 1980s, well before the major advancements in seismic technology. The conclusion may also be premature in that it ignores the relationship between price and the success rate. Increases in the price may positively (negatively) affect the success rate. Given this, and the decline in price over the past decade, one would expect the success rate to have declined (increased) in the absence of technological change. This paper develops an econometric model that attempts to disentangle and quantify the effects of the major factors hypothesized to affect the offshore exploratory success rate. The analysis relies on company level data from the EIA's Financial Reporting System over the period 1978 through 1995.
Coal or Nuclear in New Power Stations: The Political Economy of an Undesirable but Necessary Choice
Authors: Radetzki Marian
Published: May 2011

Where gas and hydro are not available and power capacity needs to be expanded, the choice will be between coal and nuclear, for there are few viable alternative options. This paper analyzes the factors that will determine the choice. The internal costs of power generation using coal and nuclear show no clear edge for one or the other. A tilt in favor of nuclear emerges when the external costs, as assessed by experts in the field, are added to the internal ones. Laymen's evaluations of the external costs appear to be at least an order of magnitude higher than the expert assessments, however. Given their high level and strong influence on energy policy making, these evaluations will ultimately determine the choice. But since the laymen's views in this regard are formed in an unsystematic manner and are unstable over time, it is not possible to use economic analysis to determine what that choice will be.
Energy Economists and Economic Liberalism
Authors: Robinson Colin
Published: May 2011

Energy markets in many countries have been extensively liberalised in recent years as part of the revival of market economics. However, though 'everyone may believe in markets now', there are differences of opinion about what constitutes a competitive market. The perfect competition paradigm persists and leads to demands for state regulation to counteract 'imperfections' and failures'. Energy economists should look more sceptically than they generally do at these calls for regulation, most of which have little to do with the 'public interest': in the long run the accretion of regulation may lead back to extensive state control.
Residential End-Use Electricity Demand: Results from a Designed Experiment
Authors: Bartels Robert , Fiebig Denzil G.
Published: May 2011

Being able to disaggregate total energy demand into components attributable to specific end uses provides useful information and represents a primary input into any attempt to simulate the impact of policies aimed at encouraging households to use less energy or shift load. Conceptually the estimation problem can be solved by directly metering individual appliances. Not surprisingly, this has not been widely practised and by far the most common estimation procedure has been the indirect statistical approach known as conditional demand analysis. More recently, with access to limited direct metering, both approaches have been used in combination. This paper reports on a substantial modelling exercise that represents a unique example of combining data of this type. The distinctive aspects are the extent and richness of the metering data and the fact that optimal design techniques were used to decide on the pattern of metering. As such, the empirical results are able to provide a very detailed and accurate picture of how total residential load is disaggregated by end uses. Significantly, the consumption of high penetration end uses such as lighting, which cannot be estimated by conventional conditional demand analysis, has been successfully estimated. Also, by matching our estimates of end-use load curves with some recent prices paid by distributors to purchase electricity from an electricity market pool, we have been able to determine the costs to distributors associated with servicing individual end uses.
Cost Structures for Fossil Fuel-Fired Electric Power Generation
Authors: Considine Timothy J.
Published: May 2011

This paper estimates short- and long-run marginal production costs and returns to scale in electric power generation in the United States. We find substantial short-run diseconomies of scale at high output levels. A relatively large number of small and mid-sized firms have optimal capital stocks below actual levels. In contrast, several large firms have optimal capital stock targets substantially above current levels. These disparities in actual and optimal capital suggest a possible consolidation in the industry.
OPEC and World Crude Oil Markets from 1973 to 1994: Cartel, Oligopoly, or Competitive?
Authors: Alhajji A.F. , Huettner David
Published: May 2011

This study investigates the existence of a dominant producer in the world crude oil market for the period 1973 to 1994. Contrary to the literature, the results show that neither OPEC nor the OPEC core can be characterized as a dominant producer. Using statistical tests, we also investigate whether OPEC, the OPEC core, or Saudi Arabia fit the competitive model or the Cournot model. The statistical results reject all models except the dominant firm model for Saudi Arabia. New user cost estimates are introduced and included in the models. An alternative explanation of high OPEC profits in the 1973-82 period is also developed as part of a statistical test of the effect of the US oil price regulation on world oil demand and supply. An estimate of the wealth transfer from price regulation is also calculated.
Customers' Choice Among Retail Energy Suppliers: The Willingness-to-Pay for Service Attributes
Authors: Goett Andrew A. , Hudson Kathleen , Train Kenneth E.
Published: May 2011

We examine small/medium commercial and industrial customers' choices among energy suppliers in conjoint-type experiments. The distribution of customers' willingness to pay is estimated for more than 40 attributes of suppliers, including sign-up bonuses, amount and type of renewables, billing options, bundling with other services, reductions in voltage fluctuations, and charitable contributions. These estimates provide guidance for suppliers in designing service options and to economists in anticipating the services that will be offered in competitive retail energy markets.
Supplementarity: An Invitation to Monopsony?
Authors: Ellerman A. Denny , Wing Ian Sue
Published: May 2011

Article 17 of the Kyoto Protocol allows Annex B parties to meet their greenhouse gas emissions commitments by emissions trading so long as such trading is "supplemental" to domestic abatement actions. Whether and how "supplemental" should be defined is one of the most contentious issues in the post-Kyoto climate negotiations. We demonstrate that implementing supplementarity by imposing concrete ceilings on permit imports in a market for tradable emissions rights gives rise to monopsonistic effects similar to those that characterize a buyers' cartel. We assess the EUproposal on supplementarity in this context. Our results show that, under the most favorable assumptions, the proposal avoids the redistributive effects of an import limit, albeit at added cost. Under less favorable assumptions, namely, that the required demonstrations of verifiable abatement cannot be made, the EU proposal severely limits emissions trading and the associated reductions in the costs of achieving the Kyoto commitments.
Oil Production in the Lower 48 States: Economic, Geological, and Institutional Determinants
Authors: Kaufmann Robert K. , Cleveland Cutler J.
Published: May 2011

In this paper, we establish an empirical model for oil production in the lower 48 states that represents its economic, physical, and institutional determinants. We estimate a vector error correction model for oil production in the lower 48 states that specifies real oil prices, average production costs, and prorationing by the Texas Railroad Commission. These modifications enable us to generate a model that accounts for most of the variation in oil production in the lower 48 states between 1938 and 1991. The result that oil production in the lower 48 states shares stochastic trends with real oil prices, average production costs, and prorationing indicates that accuracy of Hubbert's bell shaped curve is fortuitous. The importance of these factors also indicates why the basic Hotelling model cannot replicate the production path for oil in the lower 48 states. This inability is critical. The negative economic effects associated with high prices and energy shortages imply that the importance of inconsistencies with the basic Hotelling model identified by this analysis may be sufficient to warrant a greater degree of government intervention in the transition from oil than is currently envisioned by most policy makers.
Zonal Pricing in a Deregulated Electricity Market
Authors: Bjorndal Mette , Jornsten Kurt
Published: May 2011

In the deregulated Norwegian electricity market a zonal transmission pricing system is used to cope with network capacity problems. In this paper we illustrate some of the problems with the zonal pricing system as it is implemented in Norway. Using small network examples we illustrate the difficulties involved in defining the zones, the redistribution effects of the surplus that a zonal pricing system has, as well as the conflicting interests concerning zone boundaries that are present among the various market participants. We also show that a zone allocation mechanism based on nodal prices does not necessarily lead to a zone system with maximal social surplus. Finally, we formulate an optimization model that when solved yields the zone system that maximizes social surplus given a pre-specification of the number of zones to be used.
Are Regional Oil Markets Growing Closer Together?: An Arbitrage Cost Approach
Authors: Kleit Andrew N.
Published: May 2011

A large number of papers published in the last decade have attempted to show that energy markets have grown more integrated. These articles attempt to infer that various markets have become more "unified" because the correlation (in various forms) of prices between markets has increased during the last several years. This article suggests that a more appropriate modeling technique based on the theory of arbitrage as presented in Spiller and Wood (1988a and b), is better suited to answering this question. In this paper, the arbitrage technique is extended and applied to light crude oil markets in the 1990s. Arbitrage costs between markets are estimated. In addition, the hypothesis that crude oil markets have converged during this period is tested. Substantial though mixed support is gained for this hypothesis.
The Impact of Agency Costs on Regulator Compensation and the Size of Electric Utility Commissions
Authors: Mixon Franklin G.
Published: May 2011

The current study examines the impact of the selection of electric utilities regulators on their compensation and the size of the regulatory commissions they lead. Much like the CEOs of regulated enterprises, managers of politically supported enterprises and bureaucracies might be expected to pursue increases in the size of administration budgets, the number of support staff and compensation packages (i.e., engage in expense preference behavior). In the case of public utility commissions, the principal-agent model used to describe private firms applies. However, within politically-appointed regulatory regimes, utilities commissioners are the agents of politicians instead of the population at large. In elected regimes, regulators are the agents of the population at large. Statistical models presented in this paper point toward greater levels of expense preference behavior (or expected utility maximization) by commissions (ers) within appointed regulatory regimes, as public choice models and models of the firm would suggest.
International Comparisons of Sectoral Carbon Dioxide Emissions Using a Cross-Country Decomposition Technique
Authors: Schipper Lee , Murtishaw Scott , Unander Fridtjof
Published: May 2011

Discerning which sources contribute most to differences in per capita carbon emissions and why presents a daunting task for analysts, since several underlying factors affect emissions from hundreds of end-uses. This paper provides details of an international comparison methodology and carries out the comparison on a number of International Energy Agency (IEA) member countries. These calculations show where differences in the components of emissions lead to large gaps among countries. The data, from national sources, are the most extensive and disaggregated ever compiled for this kind of international analysis. Overall, activity differences account for the largest part of the gap in per capita emissions among IEA countries. If we normalize emissions to GDP, then transport activity levels, energy intensities, and utility carbon intensity share about equally in explaining the differences in carbon/GDP ratios among countries. Most of the structural variations arise in the freight, services, and household sectors—sectors less sensitive to international competition than manufacturing.
Economic Development and End-Use Energy Demand
Authors: Medlock Kenneth B. , Soligo Ronald
Published: May 2011

We examine the relationship between economic development and energy demand. The paper identifies the development patterns that characterize particular economic sectors, and analyzes the effect of sector-specific energy demand growth rates on the composition of final energy demand. We also examine some of the associated policy implications. Industrial energy demand increases most rapidly at the initial stages of development, but growth slows steadily throughout the industrialization process. Energy demand for transportation rises steadily, and takes the majority share of total energy use at the latter stages of development. Energy demand originating from the residential and commercial sector also increases to surpass industrial demand, but long term growth is not as pronounced as it is in the transport sector. These results have implications for the primary energy demand of an economy as it develops, and thus, for domestic energy security and global geopolitical relationships.
The Determinants of Sulfur Emissions from Oil Consumption in Swedish Manufacturing Industry, 1976-1995
Authors: Hammar Henrik , Löfgren Åsa
Published: May 2011

Using a structural decomposition analysis, we analyze the causes of a reduction in sulfur emissions originating from oil consumption in the manufacturing industry in Sweden during 1976-1995. The Swedish case is of interest since Sweden has pursued an ambitious policy to combat the precursors of acid rain. Between 1989 and 1995, about 59 percent of the reduction in sulfur emissions from manufacturing can be attributed to the announcement and implementation of a Swedish sulfur tax. Two thirds of the reduction during 19761995 is captured by substitution between oil and other energy sources. The price of electricity also has had a significant effect via substitution between oil and electricity. Furthermore, one third of the reduction during 1976-1995 is explained by decreased energy intensity.
The Dynamics of Commodity Spot and Futures Markets: A Primer
Authors: Pindyck Robert S.
Published: May 2011

I discuss the short-run dynamics of commodity prices, production, ami inventories, as well as the sources and effects of market volatility. I explain how prices, rates of production, and inventory levels are interrelated, and are determined via equilibrium in two interconnected markets: a cash market for spot purchases and sales of the commodity, and a market for storage. I show how equilibrium in these markets affects and is affected by changes in the level of price volatility. I also explain the role and behavior of commodity futures markets, and the relationship between spot prices, futures prices, and inventory behavior. I illustrate these ideas with data for the petroleum complex - crude oil, heating oil, and gasoline - over the past two decades.
Adelman's Rule and the Petroleum Firm
Authors: Cairns Robert D. , Davis Graham A.
Published: May 2011

Observing that net prices do not rise as predicted and that resource stocks are not fixed, Adelman questions Hotelling's model of an exhaustible resource. He cites a rule of thumb for valuing oil reserves which is about one-half that given by the Hotelling valuation principle. We apply an optimization model to a stylized characterization of an oil reservoir. Adelman's valuation rule is confirmed. An r-percent rule emerges as well, but it is not Hotelling's rule. We end the paper with our interpretation of Hotelling's rule. We also consider the role of investment in augmenting the quantities of a resource currently extracted.
Uncertainties in Responding to Climate Change: On the Economic Value of Technology Policies for Reducing Costs and Creating Options
Authors: Papathanasiou Demetrios , Anderson Dennis
Published: May 2011

The paper presents a simplified model of the form often used to project long-term emissions of carbon dioxide from energy production and use. It then considers three uncertainties in parameters of the model concerning (a) the rate of improvement in energy efficiency, (b) the costs of environmental damage, and (c) the rate of technical progress in the development and use of technologies for abating C02 emissions. Monte Carlo analysis is used to estimate the frequency distributions of costs and benefits under different policy assumptions. The results suggest that the possibilities of an economic surprise cannot be ruled out and that 'technology policies' to support the development of non-carbon technologies directly are robust under uncertainty. Such policies can also be defended by reference to their option value, to their environmental benefits, and to the positive externalities of innovation.
Self-Sufficient Energy Supply for Isolated Communities: Wind-Diesel Systems in the Canary Islands
Authors: Carta José Antonio , González Jaime
Published: May 2011

This paper describes the technical and economic methods used to select a wind-diesel power system in the Canary Islands. The project was implemented with the aim of meeting the complete energy requirements of a small isolated fishing village, while minimizing fuel consumption and C02 emissions. We focus on the decisions taken and lessons learned during configuration of the hybrid system. The project offers a working model for the application of renewable energy to an isolated community where there is no external electricity supply. We analyse nine hypotheses for the system's configuration and operation including the option of using diesel only as a base for comparison. Our results show that the hybrid systems, though employing high percentages of wind energy, were actually more expensive in terms of units of energy produced than the diesel only option. Therefore, a reduction in C02 emissions implies additional costs in the energy supply system.
How Plausible is the Consensus Projection of Oil Below $25 and Persian Gulf Oil Capacity and Output Doubling by 2020?
Authors: Gately Dermot
Published: May 2011

A two-part consensus in three recent long-term projections of the world oil market states: oil's price will stay below $25 (1999 $/barrel), and OPEC oil capacity and production will increase rapidly over the next two decades to unprecedented levels, more than doubling in the Persian Gulf by 2020. Such are the projections by the International Energy Agency (IEA), by the Energy Information Administration of the U.S. Department of Energy (DOE), and in The New Economy of Oil by John Mitchell and others. Yet such projections are not based on behavioral analysis of Gulf countries' decisions; they are merely the calculated residual demand for OPEC oil, the difference between projected world oil demand and non-OPEC supply, given some assumed price-path. Such projections by IEA and DOE are implausible because they rely on supply behavior by Gulf producers that is not in their own self-interest. The DOE projections of world oil prices could be reasonable, but only if world oil demand and/or non-OPEC supply are much more price-responsive than are represented in their numerical projections. Using an updated version of the model from Gately (1995), I show that the effect of greater price-responsiveness is to make faster output growth - not higher prices - the reliable path to higher OPEC revenue. I also demonstrate the effects of uncertainty about several key parameters (such as price and income elasticities) upon model results when parameter values are randomly sampled 500 times.
The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage
Authors: Paltsev Sergey V.
Published: May 2011

Carbon dioxide emissions abatement in a group of countries can result in increased emissions in non-abating countries. This effect has been referred to as carbon leakage. The Kyoto Protocol calls for a number of industrialized countries to limit their emissions while other countries have no abatement commitments. This paper assesses the sectoral and regional determinants of the leakage in a static multi-sector, multi-regional computable general equilibrium model. In baseline estimates based on our model, the Kyoto Protocol leads to a carbon leakage rate of 10 percent. A decomposition technique is applied which attributes increases in C02 emissions by non-participating countries to specific sectors in the abating countries. This information is important for the debate on the tax exemptions for certain industries in the participating countries as it provides information for the most- and least-leakage contributing sectors of the economy. Additional calculations indicate the need for caution in the carbon tax design. Exemptions of any sector from a carbon tax are not justified because they lower welfare in a region. The degree of sectoral and regional data disaggregation, and international capital mobility do not change the leakage rate significantly. Fossil-fuel supply elasticities and trade substitution elasticities are crucial determinants for projecting the total World emissions of C02.
Greenhouse Gas Reduction Policy in the United States: Identifying Winners and Losers in an Expanded Permit Trading System
Authors: Rose Adam , Oladosu Gbadebo
Published: May 2011

We present an analysis of the economic impacts of marketable permits for greenhouse gas reduction across industries and income groups in the United States. A computable general equilibrium model is used to simulate permit markets under various assumptions about permit allocations, industry coverage, revenue recycling, sequestration, and the inclusion of multiple greenhouse gases. Our results indicate that a permit price of as much as $128 per ton carbon would be needed to comply with the full U.S. Kyoto commitment, and that this would lead to a slightly more than 1 percent reduction in GDP in the year 2010. Expansion of trading to include carbon sequestration and methane mitigation can significantly lower these impacts. However, all policy alternatives simulated are somewhat regressive in terms of income distribution, though to significantly different degrees depending on the policy design.
The Discovery Decline Phenomenon: Microeconometric Evidence from the UK Continental Shelf
Authors: Pickering Andrew
Published: May 2011

The Discovery Decline Phenomenon (DDP) requires that firm-level discoveries of a non-renewable resource depend, non-linearly, upon cumulative industry wide exploration. In this paper, an optimal rule for the exploration effort that adheres to the DDP is derived. Data from the United Kingdom Continental Shelf (UKCS) are applied to the model where it is found that cumulative exploration is a highly significant determinant of firm-level exploration, and that prices and taxes also determine exploration effort. The 'Hubbert peak’ in discoveries in the UKCS is estimated to be 1989 thereby improving upon previous estimates but also implying that the DDP in this region is already quite advanced.
Le Tarif Vert Retrouvé: The Marginal Cost Concept and the Pricing of Electricity in Britain and France, 1945-1970
Authors: Chick Martin
Published: May 2011

This article compares the development of marginal cost pricing in the French and UK nationalised electricity industries between 1945 and 1970. Asking why French ‘marginaliste’ economists like Allais and Boiteux enjoyed more influence than their UK counterparts like Meade, political decisions concerning the organisation of the electricity industries, the differing influence of industrial and consumer interests, and the early postwar choices of hydro and thermal investment in France, are advanced as explanations. In the UK, the Treasury pushed nationalised industries towards marginal cost pricing, requiring them to earn rates of return on existing investment and to subject the proposed investment to test discount rates during the 1960s. The paper closes by arguing that these different routes to marginal cost pricing in the French and UK nationalised electricity industries had significant effects on later government and public attitudes towards the privatisation and liberalisation of the national electricity industry and market.
Costs of Atmospheric Fluidized-Bed Combustors for Electric Power Generation
Authors: Scherr Frederick C. , Fuller Jack A.
Published: May 2011

Atmospheric fluidized-bed combustion (AFBC) is the prevalent technology in boiler design for new power plants. Using plant-level cost data from a sample of commercial AFBC power plants, we examine the effects of fuel type (scrap coal or standard-grade coal), plant size, and plant completion date on fuel costs, operating costs, capital costs, and levelized total costs per unit of electrical output. We find important relationships between the type of fuel used and unit-output fuel costs (AFBC plants burning scrap are cheaper in fuel per unit of output, despite the lower heat content of scrap) and between operating costs and plant size (larger AFBC plants are cheaper to run). While we find that the advantage in unit fuel costs is not reflected in levelized total costs (which are affected only by plant size), this result may be caused by our procedure for calculating levelized total costs from component costs.
Interfuel Substitution within Industrial Companies: An Analysis Based on Panel Data at Company Level
Authors: Bjørner Thomas Bue , Jensen Henrik Holm
Published: May 2011

In this paper we estimate two models for interfuel substitution between electricity, district heating and (other) fuels using a micro panel data set containing information for most Danish industrial companies in the period between 1983 and 1997. The main finding of the study is that interfuel substitution is low within the companies, especially between electricity and other fuels. The partial own-price elasticities estimated are small (between -0.04 and -0.13) both for electricity and other fuels, while it is between -0.44 and -0.50 for district heating. The partial own-price elasticity for electricity is smaller than generally found in macro studies. One explanation may be that the macro studies, in addition to technical substitution, capture some derived demand effect (i.e., aggregation bias).
Oil Price Shocks and the U.S. Economy: Where Does the Asymmetry Originate?
Authors: Balke Nathan S. , Brown Stephen P.A. , Yiicel Mine K.
Published: May 2011

Rising oil prices appear to retard aggregate U.S. economic activity by more than falling oil prices stimulate it. Past research suggests adjustment costs, financial stress, and/or monetary policy may be possible explanations for the asymmetric response. This paper uses a near vector autoregressive model of the U. S. economy to examine where the asymmetry might originate. The analysis uses counterfactual experiments to determine that monetary policy alone cannot account for the asymmetry.
The Capital-Energy Controversy: An Artifact of Cost Shares?
Authors: Frondel Manuel , Schmidt Christoph M.
Published: May 2011

Any serious empirical study of factor substitutability has to allow the data to display complementarity as well as substitutability. The standard approach reflecting this idea is a translog specification—this is also the approach used by the majority of studies analyzing the substitutability of energy and capital. Yet, the substitutability between capital and energy and the source of discrepancies in the results still remain controversial. This paper offers a straightforward explanation for at least the divergent results provided by the translog studies: Using a translog approach reduces the issue of factor substitutability to a question of cost shares. Our review of translog studies demonstrates that this argument is empirically far more relevant than the distinction between time-series and panel studies being favored in the literature. More generally, we provide ample empirical evidence for our argument that the magnitudes of cross-price elasticity estimates of two factors gleaned from static approaches like the translog functional form are mainly driven by the cost shares of these factors.
Pricing Natural Gas in Mexico: An Application of the Little-Mirrlees Rule
Authors: Brito Dagobert L. , Rosellon Juan
Published: May 2011

The Mexican energy regulatory commission—Comision Reguladora de Energia (CRE)-has implemented a netback rule for linking the Mexican market for natural gas with the North American market. This paper describes the economic analysis that supported this policy. We show that the netback rule is the efficient way to price natural gas and it is in fact an application of the Little-Mirrlees Rule.
A Quantitative Analysis of Pricing Behavior in California's Wholesale Electricity Market During Summer 2000†
Authors: Joskow Paul L. , Kahn Edward
Published: May 2011

During the Summer of 2000, wholesale electricity prices in California were nearly 500% higher than they were during the same months in 1998 or 1999. This price explosion was unexpected and has called into question whether electricity restructuring will bring the benefits of competition promised to consumers. The purpose of this paper is to examine the factors that explain this increase in wholesale electricity prices. We simulate competitive benchmark prices for Summer of 2000 taking account of all relevant supply and demand factors—gas prices, demand, imports from other states, and emission permit prices. We then compare the simulated competitive benchmark prices with the actual prices observed. We find that there is a large gap between our benchmark competitive prices and observed prices, suggesting that the prices observed during Summer 2000 reflect, in part, the exercise of market power by suppliers. We then proceed to examine supplier behavior during high-price hours. We find evidence that suppliers withheld supply from the market that would have been profitable for price-taking firms to sell at the market price.
Micro Econometric Modelling of Household Energy Use: Testing for Dependence between Demand for Electricity and Natural Gas
Authors: Leth-Petersen Soren
Published: May 2011

This paper contains a micro econometric analysis of household electricity and natural gas demand for a cross section of 2,885 Danish households observed in 1996. The sample includes fulltime employed couples in single-family houses. The specification of the model is guided by an explorative nonparametric data analysis. The analysis reveals, among other things, the fairly surprising result that demand for heating is unaffected by the number of children in the household. The dependence between demand for gas and demand for electricity is examined in the paper. This is done by testing for separability of demand for gas from demand for electricity, and vice versa. Separability of electricity (gas) from gas (electricity) is tested by estimating demand for electricity (gas) conditional on demand for gas (electricity). The model allows for endogeneity of the conditional variable. Building regulations and individual time variation, that is panel data, identify the test. The test indicates that demand for electricity is separable from demand for natural gas, and that demand for natural gas is separable from demand for electricity. The result of the test is evidence in favour of single equation modelling of household energy demand in this context.
Energy Price, Environmental Policy, and Technological Bias
Authors: Taheri Abbas A. , Stevenson Rodney
Published: May 2011

This paper investigates input biasing characteristics of technology, environmental compliance, and changing energy prices. In particular we wish to investigate whether input biases of technology and environmental compliance are induced by changes in relative fuel prices, or whether there are price induced technology and environmental compliance biases. Using a two-stage optimization, we estimate a truncated third-order translog model by its associated (second order) cost share equations. The model uses two-digit SIC data panel for the period 1974 -1991. We find evidence of significant fuel-saving technological bias, while environmental compliance has been significantly fossilfuel using. The results indicate that technology and environmental compliance biases are, in part, induced by changes in relative fuel prices and such induced biases are mainly fuel saving. Finally, our demand elasticity estimates indicate that industrial demand for most fossil fuels and purchased electricity is significantly price inelastic. Policy implications of these results are also briefly discussed.
An Almost Ideal Demand System Model of Household Vehicle Fuel Expenditure Allocation in the United States
Authors: Oladosu Gbadebo
Published: May 2011

In this study I model vehicle-fuel expenditure allocation in multi-vehicle households based on the Almost Ideal Demand System (AIDS). Using data from surveys conducted by the Energy Information Administration in 1988, 1991 and 1994, I estimate the AIDS model, augmented with a comprehensive set of household and vehicle characteristics for households owning 1 to 4 vehicles ordered by vehicle age. Results show that vehicle characteristics are the most significant factors in the expenditure allocation process. Mean and standard deviation of price, expenditure and Allen substitution elasticities are calculated across households. Own-price elasticities for all vehicles are close to 1. Allen substitution elasticities indicate that all vehicle pairs are substitutes, and only vehicle 1 is found to be expenditure inelastic. The approach taken in this study enables a disentangling of vehicle allocation/substitution effects from aggregate household vehicle use behavior. This will be useful in the analysis of efficiency and distributional effects of policies affecting household transportation.
Modeling the Cost of Climate Policy: Distinguishing Between Alternative Cost Definitions and Long-Run Cost Dynamics
Authors: Jaccard Mark , Nyboer John , Bataille Chris , Sadownik Bryn
Published: May 2011

Interest groups and experts debate the cost of greenhouse gas (GHG) reduction, and policy-makers do not know whom to believe. The confusion stems from differing definitions of costs and divergent assumptions about key uncertainties, especially the role of policy in influencing the long-run evolution of technologies and consumer preferences. Analysis could be more helpful to policy-makers by combining technological explicitness with behavioral realism in hybrid models. With such a model, we demonstrate how GHG reduction cost estimates vary depending on whether the analyst focuses just on the financial costs of technologies or combines this with other relevant components of consumer and business preferences, such as option value and consumers’ surplus. We also show how this type of model can allow policy-makers to explore the uncertain relationship between policies and the evolution of technologies and preferences, which are critical factors in the long-run cost dynamics of GHG emission reduction. We explore these generic methodological issues with a case study of GHG reduction costs in Canada.
Oil Price Shocks and Aggregate Fluctuations
Authors: Miguel Carlos de , Manzano Baltasar , Martm-Moreno José M
Published: May 2011

This paper analyzes the effects of oil price shocks on the characteristics of the business cycle and on welfare in a small open economy, such as in the case of the Spanish economy. The results show the ability of the model to reproduce the business cycle path of the Spanish economy, especially in those periods when shocks in the price of oil were most dramatic. Furthermore, the model reproduces other regularities of the Spanish business cycle. Finally, it is shown that the increases in the relative price oil had a negative and significant effect on welfare.
Are Differentiated Carbon Taxes Inefficient? A General Equilibrium Analysis
Authors: Bye Brita , Nyborg Karine
Published: May 2011

Revenue-raising environmental policy instruments, such as carbon taxes, tend to be politically controversial. In practice, carbon taxes are often differentiated between polluters, implying unequal marginal abatement costs. Grandfathered tradeable permits seem less controversial; this instrument yields equal marginal abatement costs, but does not raise revenue. We compare a system of differentiated carbon taxes, exemplified by the current Norwegian carbon tax regime, to uniform carbon taxation and grandfathered tradeable emission permits. In this particular case, differentiated taxes are welfare superior to grandfathered permits. Nevertheless, uniform carbon taxes outperform both.
Market Power in International Carbon Emissions Trading: A Laboratory Test
Authors: Carlén Björn
Published: May 2011

The prospect that governments of one or a few large countries, or trading blocs, would engage in trading of international greenhouse gas emissions has led several policy analysts to express concerns that trade would be influenced by market power. The experiment reported here mimics a case where twelve countries, one of which is a large buyer (the mirror-image of a large seller), trade carbon emissions on an emissions exchange (a double-auction market) and where traders have quite accurate information about the underlying net demand. The findings deviate from those of the standard version of market power effects in that trade volumes and prices converge on competitive levels.
The Effects of Market Reforms on Structural Change: Implications for Energy Use and Carbon Emissions in China
Authors: Fisher-Vanden Karen
Published: May 2011

This paper assesses the role played by market reforms in shaping the future level and composition of production, energy use, and carbon emissions in China. Arguments have been made that reducing distortions in China’s economy through market reforms will lead to energy efficiency improvements and lower carbon emissions in China. However, these arguments are based on partial and not general equilibrium analyses, and therefore overlook the effects of market reforms on economic growth and structural change. The results suggest that further implementation of market reforms could result in a structural shift to less carbonintensive production and thus lower carbon emissions per unit GDP. However, this fall in carbon intensity is not enough to compensate for the greater use of energy as a result of market reforms due to higher economic growth and changes in the composition of production. Therefore, China’s transition to a market economy could result in significantly higher economic growth, energy use, and carbon emissions. These results could have implications for other countries considering or undergoing market transition.
Unravelling Trends and Seasonality: A Structural Time Series Analysis of Transport Oil Demand in the UK and Japan
Authors: Hunt Lester C. , Ninomiya Yasushi
Published: May 2011

This paper demonstrates the importance of adequately modelling the Underlying Energy Demand Trend (UEDT) and seasonality when estimating transportation oil demand for the UK and Japan. The structural time series model is therefore employed to allow for a stochastic underlying trend and stochastic seasonals using quarterly data from the early 1970s, for both UK and Japan. It is found that the stochastic seasonals are preferred to the conventional deterministic dummies and, more importantly, the UEDT is found to be highly non-linear for both countries, with periods where it is both upward and downward sloping.
Trade Liberalization and Carbon Leakage
Authors: Kuik Onno , Gerlagh Reyer
Published: May 2011

This paper examines the effect of trade liberalization on carbon leakage. We present quantitative estimates of carbon leakage under the Kyoto Protocol with and without freer trade by means of import tariff reductions agreed to in the Uruguay Round of multilateral trade negotiations. We find that under a plausible range of assumptions, the implementation of these import tariff reductions increases the overall rate of leakage, suggesting that previous studies may structurally have underestimated the rate of carbon leakage under the Kyoto Protocol. But we also find that the costs of abating the trade-induced leakage are modest relative to the welfare gains of freer trade. Analysis of the trade-induced carbon leakage shows large differences between leakage caused by reductions of import tariffs on energy goods and by reductions of import tariffs on non-energy goods. It also shows large differences in emission responses among developing country regions.
U.S. Midwest Gasoline Pricing and the Spring 2000 Price Spike
Authors: Bulow Jeremy I. , Fischer Jeffrey H. , Creswell Jay S. , Taylor Christopher T.
Published: May 2011

Gasoline prices increased dramatically in the U.S. Midwest in the summer of 2000, generating allegations of collusion among gasoline marketers. We examine the causes of the price increase, and find no evidence to support the collusion story. Instead, a combination of industry characteristics and unanticipated problems in switching to a new, federally-mandated gasoline specification caused the spike. Once prices rose, firms responded as quickly as possible to get additional supplies to affected markets.