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Economics of Energy & Environmental Policy
Volume 11, Number 2

Symposium on ‘Energy Transformation, Social Inclusion, and Economic Prosperity in Latin America’

Energy Transformation, Social Inclusion, and Economic Prosperity in Latin America: An Introduction

Felipe Corral Montoya, Chiara Lo Prete, Juan Rosellón, Paola Yanguas Parra

From Negative to Positive Carbon Pricing in Mexico

Carlos Muñoz-Piña, Mariza Montes de Oca Leon, and Marisol Rivera-Planter

DOI: 10.5547/2160-5890.11.2.cmun
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Over the course of a decade, Mexico transitioned from a peak of 1.8% of GDP given as fuel subsidies in 2008 to generating positive fuel tax revenues equivalent to 1.6% of its GDP in 2018. This paper analyzes Mexico's carbon pricing experience: the mechanisms that made fossil fuel subsidies such a large burden on public finances, the strategies followed in its five-year phase-out, and the institutional changes that enabled crossing into positive carbon taxation, both explicit and implicit. We analyze the effect of three carbon pricing instruments: 1) the subsidy phase-out, 2) the explicit carbon taxation, and 3) the implicit carbon pricing in excise fuel taxation. We present scenarios to assess the contribution of each policy to Mexico's voluntary commitments under the Paris Agreement. The subsidy phase-out and carbon taxes phase-in significantly contributed to Mexico´s carbon emissions reductions. Importantly, we show that excise taxes applied to fossil fuels accrued the largest emissions reductions across all carbon pricing mechanisms due to their magnitude. We present evidence of decoupling between fuel (gasoline and diesel) consumption and economic growth. Our findings support the emerging view that carbon pricing through fiscal policy, in Mexico and elsewhere, shouldn't be restricted to explicit carbon pricing in the form of ETS or carbon taxes. Instead, it should be understood and calculated as the sum of excise taxes net of subsidies, carbon taxes and other forms of carbon pricing, subtracting any fiscal crediting or stimuli present.

A Global South Perspective on Stranded Regions: Insights from the Decline of Coal Mining in Cesar, Colombia

Andrea Furnaro and Paola Yanguas-Parra

DOI: 10.5547/2160-5890.11.2.afur
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The sharp decline in fossil fuel demand related to the Covid-19 pandemic put in evidence some of the impacts that can be created by the energy transition. By putting into conversation the literature on economic decline in extractive regions and debates on stranded fossil fuel assets, this paper presents the case of the region of Cesar, Colombia, which in 2020 experienced a 33% decline in coal production and an unexpected idling of some of its largest coal mines. We identify various economic impacts for workers, communities, and local governments caused by the structural crisis faced by this activity. Eight challenges identified can be of relevance to other coal-dependent regions in the Global South. We argue that in such regions, many of the impacts recognized by the literature on the Global North are exacerbated. More importantly, additional challenges of a decline in coal production, particularly the precariousness of local economies based on high levels of informal and low value-added activities, the role of coal companies in social spending, and limited available data and institutional capacity, increase the risk of coal regions becoming stranded.

Mexico's Energy Prospects: Gains from Renewable Sources Over A Fossil Fuel-Dominated Environment

Pedro I. Hancevic, Héctor M. Núñez, and Juan Rosellón

DOI: 10.5547/2160-5890.11.2.phan
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Changing political conditions in Mexico threatens the future of clean energy in the country. A competitive electricity market and ambitious environmental goals were among the priorities of the previous administration, but the current administration aims to increase revenues from the national power company and acquire control of the electricity market at the expense of consumer welfare and the environment. In the medium and long term, however, renewable energies are expected to make significant progress as a very competitive energy source. In this work, we develop an economic framework to provide insights into the economic and environmental effects of promoting the renewable energy industry. Results show that maintaining the status quo will only favour electricity company revenues (for a limited time), but renewable energy won't take off, while a green strategy would boost economic growth, reduce emissions, and ultimately improve social welfare.


Decision Framework for Selecting Flexibility Mechanisms in Distribution Grids

Fernando-David Martín-Utrilla, José Pablo Chaves-Ávila, and Rafael Cossent

DOI: 10.5547/2160-5890.11.2.fmar
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The energy transition will lead to the coexistence of centralised and distributed energy resources (DER) and the increasing electrification of processes traditionally fed by other energy vectors. This scenario requires adapting distribution networks to integrate these new grid users while maintaining the reliability of the service. In this context, flexibility services from DER are presented as a new alternative that will allow more efficient use of the networks. However, not all flexibility mechanisms (as ways of accessing flexibility) are equally suitable to address the different problems and needs faced by distribution system operators (DSOs). This paper identifies the key criteria that determine the more suitable mechanism to implement in each case and discusses the different criteria to choose the way to acquire flexibility for DSO use. Based on this, the paper proposes a comprehensive decision framework to consider all the different available mechanisms and, based on the DSO needs and the situation of the network, proposes the most suitable flexibility mechanism. Additionally, several key criteria are used to evaluate the different flexibility mechanisms. As a result, the most suitable mechanisms are highlighted as useful tools to solve the needs of the network at all voltage levels and adapted to each situation.

Impact of Japanese House Insulation Subsidy System on Home Owners' Energy-Saving Awareness

Mieko Fujisawa and Mika Goto

DOI: 10.5547/2160-5890.11.1.mfuj
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Achieving the massive target of reduction in carbon dioxide emissions in the household sector requires that consumers be made aware of this issue. If consumers update their energy-saving awareness and related behaviors, the energy-efficiency effect can be expected to continue. For this purpose, this study analyzes the indirect effects of the housing eco-points system subsidy on consumers in Japan. We collected data using a questionnaire survey of consumers who used the subsidy system and performed a logistic regression analysis. The results revealed the following factors exert a positive effect on energy-saving awareness: realization of insulation-performance effect, understanding of insulation and energy conservation standards, experience of the environmentally concerned, timely receipt of the subsidy, and the self-declaration system. Further, the results showed that, when consumers are exposed to the learning effects through experience and understanding, they become more conscious of energy conservation. This indicates that the housing eco-points subsidy had indirectly affected energy saving. This study can provide policymakers with useful guidance in policymaking and institutional design, and another method for reducing carbon dioxide emissions to maximize the use of limited resources amid financial constraints.

Model-Based Evaluation of Decentralised Electricity Markets at Different Phases of the German Energy Transition

David Ritter, Christoph Heinemann, Dierk Bauknecht, Christian Winger, and Franziska Flachsbarth

DOI: 10.5547/2160-5890.11.1.drit
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This paper investigates decentralised markets in the German electricity system, defined as markets in specific regions in which regional electricity demand is met primarily by regional generation and the remaining demand is met on a system-wide level in a second step. The research question is: What impact do the size of decentralised markets and the type of authorised participants have in different levels of the energy transition? The results show that the greatest effects from decentralised markets are caused by an increased usage of gas-fired power plants, as they are the major dispatchable generators in the future electricity system, resulting in significantly higher CO2 emissions and electricity generation costs, but also higher local self-supply rates. With very high RES-E shares the results hardly differ between the reference case and decentralised market models. The size of decentralised markets has a lower impact than limited access for certain fuel types or generation capacity size. Although decentralised markets can reduce the load on the grid, the need for grid expansion does not decrease. Overall, we conclude that from a system perspective decentralised markets can lead to negative effects if they are not regulated appropriately, especially during the transformation phase of the electricity system.

Should the EU ETS be Extended to Road Transport and Heating Fuels?

Michael G. Pollitt and Geoffroy G. Dolphin

DOI: 10.5547/2160-5890.11.1.mpol
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This paper considers the current proposal to extend the EU ETS to cover CO2 emissions from the combustion of heating and road transport fuels. We argue that increased coverage of the EU ETS, together with a binding cap consistent with a net zero trajectory, would provide an EU-wide quantity backstop ensuring that the EU's cumulative emissions budget constraint is satisfied. As such, working alongside standards-based policies currently enacted in the covered sectors, it has the potential to (i) enhance environmental effectiveness by providing an intertemporal incentive for additional emissions reduction and (ii) enhance the (cost) efficiency of EU-wide climate policy by ensuring that no low-cost emissions reduction is left unexploited. Distributional implications remain a serious challenge to such an extension, but several mechanisms are available to alleviate them.

Book Reviews

Book Reviews

Klimat. Russia in the Age of Climate Change, by Thane Gustafson - Book Review by: James Henderson

The Future of Electricity Retailing and How We Get There, by Frank A. Wolak and Ian H. Hardman - Book Review by: Stephen Littlechild

Regulating Public Services – Bridging the Gap between Theory and Practice, by Frank A. Wolak and Ian H. Hardman - Book Review by: Nils-Henrik M von der Fehr

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