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Energy Journal Issue

The Energy Journal
Volume 13, Number 1

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The Hotelling Principle: Autobahn or Cul de Sac?

G. C. Watkins

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-1
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The economics of relations between prices and resource stocks has been dominated by the Hotelling Principle. But seemingly little attention has been given to the Principle by the oil and gas industry itself. In this paper the Principle is appraised, some new empirical results based on the value of oil and gas reserves sales are introduced, models which relax more of the Hotelling assumptions are reviewed, and the industry milieu in the context of a Hotelling Style framework is discussed. The Principle is seen as affording fundamental theoretical insights, but is not found to cope well with industry realities.

Comparing the Effects of Greenhouse Gas Emissions on Global Warming

Richard S. Eckaus

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-2
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This paper analyses the usefulness as a policy tool of a physical index of radiative forcing of a greenhouse gas, the Global Warming Potential (GWP), as proposed by the Intergovernmental Panel on Climate Change. It is shown that the economic opportunity costs of an increment in radiative forcing will vary over time, while the GWP implicitly sets these costs equal. The GWP can, therefore, play no role in policy making.

Climate Control Efficiency

G.D. Ferrier and J. G. Hirschberg

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-3
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This paper presents an application of Data Envelopment Analysis (DEA) to energy audit data by defining climate control systems as production processes. This method is proposed as an alternative to the use of regression based models which have been used in previous analyses of this type of data. The advantage of this method is the ability to compute relative efficiency measures for each observation in the data and to define these values without the assumption of a particular specification of the technology. Furthermore, this method can be used with a large number of inputs and outputs.

CETA: A Model for Carbon Emissions Trajectory Assessment

Stephen C Peck and Thomas J. Teisberg

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-4
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We present an economic growth and energy use model incorporating representations of greenhouse gas accumulation, global mean temperature rise, and the damage cost associated with this temperature rise. Under alternative assumptions about the damage cost function, we find optimal time paths of CO, emissions control and associated optimal carbon taxes. Our work indicates that with plausible assumptions, an optimal carbon tax will rise over time, in contrast to the "hump shaped" carbon taxes implied by C02 reduction policies currently being discussed. Our work also suggests that the damage cost function would have to be both high and nonlinear in order to justify the general level of CO2 control and carbon taxes implied by these policies.

What Use the IEA Emergency Stockpiles? A Price-based Model of Oil Stock Management

Bright E. Okogu

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-5
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Although the International Energy Agency (IEA) has had a program of maintaining strategic oil stockpiles since 1974 in order to cope with unforeseen interruptions to supplies, it has failed to prevent the worst effects of the 1979 and recent interruptions. This paper develops a price-based model of stock management which is then used to simulate the management of an actual supply interruption. It is argued that such a system is more appropriate for the kind of net supply shortfalls that have been, or are likely to be, experienced than the current JEA program. The JEA program relies rigidly on a predetermined net quantity shortage to activate it -- a condition which almost guarantees that it will never be used in a real crisis. By contrast, the subtrigger approach proposed in this study has the advantage of flexibility and promptness of response which would make it relevant in a real supply interruption.

Rent Taxes on Norwegian Hydropower Generation

Eirik S. Amundsen, Christian Andersen, Jan Gaute Sannarnes

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-6
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In Norway, two obstacles to the introduction of a hydro rent tax are about to vanish, the old accounting system for public utilities and the system of administered non-rent prices. The tax authorities are now searching for a viable rent tax system. In this paper we consider detailed effects of six tax systems on realistically modelled marginal and highly profitable power plants. In addition to the existing "percentage system" we examine the ordinary corporate tax system, a special electricity income tax, a higher rate of proportional income tax, an excise tax and a resource rent tax. These systems are compared and evaluated with respect to neutrality, sensitivity to the amount of economic rent generated in a plant, cost-consciousness, stability of tax rates, stability of taxes paid, uncertainty of tax revenues and administrative costs. We conclude that the existing Norwegian tax system for electricity generation is not suited for taxing hydro rent since it seriously violates several of these criteria. The existing system ought to be replaced by a resource rent tax either as a pure system or in combination with a corporate income tax system.

Vehicle Use and Fuel Economy: How Big is the "Rebound" Effect?

David L. Greene

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-7
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By reducing the fuel costs of travel, motor vehicle efficiency, improvements tend to increase the demand for travel, thereby offsetting some of the energy-saving benefit of the efficiency improvement and creating a "rebound" effect. The key factor is the elasticity of vehicle travel with respect to fuel cost per mile. Past studies offer a wide range of estimates depending on model formulation and time period, with more recent analyses indicating that travel is insensitive to fuel costs and efficiency. This paper analyzes U.S. light-duty, vehicle miles travelled from 1966 89, examining a variety of statistical issuesthat bear on the size of the "rebound" effect, including error structure, functional form, and possible lagged effects. The results consistently confirm that the 'rebound" effect has been quite small, about 5 15%, or less; and that short-run (one year) adjustments accounted for essentially all of the change in travel due to fuel price and fuel economy changes. The findings imply that the energy savings of technical fuel economy improvements to cars and light trucks will be only slightly reduced by increased vehicle travel. They also imply that gasoline taxes would need to be very large in order to stimulate significant reductions in travel.

Energy and Economic Interaction in Thailand

John C Sheerin

DOI: 10.5547/ISSN0195-6574-EJ-Vol13-No1-8
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The rapid rate of economic growth experienced in Thailand through the mid-1980s has been associated with an even more rapid use of energy as a factor input. This paper decomposes total change in energy into output, structural change and conservations effects. In the industrial sector, the rate of expansion in total energy inputs has been sharply reduced due to a structural change away from agricultural and manufacturing dominance and by a significant increase in the efficiency of energy use. In the household sector, the energy impacts of the expansion in the use of appliances were more than offset by the economies associated with delivered energy forms, and by other apparent adjustments in connection with higher energy costs.