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Energy Journal Issue

The Energy Journal
Volume16, Number 4

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The Greenhouse Debate: Econonmic Efficiency, Burden Sharing and Hedging Strategies

Alan Manne and Richard Richels

DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-1
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We address the issue of economic efficiency as it relates to climate change. We begin with a classical cost-benefit perspective. Mat is, we focus on emission trajectories which maximize net benefits. We then examine the consequences of adopting alternative decision making paradigms-for example, those based on limiting atmospheric concentrations so as to achieve an "ample margin of safety." We also consider the regional distribution of costs and benefits under alternative burden sharing schemes. Although the climate issue is often viewed from a global perspective, international negotiators will be acutely interested in how damages and mitigation costs might be distributed among individual regions. Finally, we address the issue of decision making under uncertainty. The challenge confronting today's policy makers is to identify it sensible hedging strategy-one that balances the risks of waiting against those of premature action.

Oil Shocks and the Macroeconomy: The Role of Price Variability

Kiseok Lee, Shawn Ni, and Ronald A. Ratti

DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-2
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In this paper we argue that an oil price change is likely to have greater impact on real GNP in an environment where oil prices have been stable, than in an environment where oil price movement has been frequent and erratic. An oil price shock variable reflecting both the unanticipated component and the time-varying conditional variance of oil price change (forecasts) is constructed and found to be highly significant in explaining economic growth across different sample periods, even when matched against various economic variables and other functions of oil price. We find that positive normalized shocks have a powerful effect on growth while negative normalized shocks do not.

Performance-Based Pricing for Nucleaer Power Plants

Yeon-Koo Che and Geoffrey Rothwell

DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-3
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State public utility commissions in the United States have implemented incentive regulations to promote the operating efficiency of nuclear power plants. This paper surveys these incentive programs, focusing on the perfomance-based pricing approach. Our findings suggest that the performance-based price should be set between the electric utility's avoided cost and the marginal cost of generating electricity at the nuclear power plant.

Greenhouse Gas Emission Reduction: A Case Study of Sri Lanka

Peter Meier and Mohan Munasinghe

DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-4
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In this paper we describe a case study for Sri Lanka that explores a wide range of options for reducing greenhouse gas (GHG) emissions. Options range from renewable technologies to carbon taxes and transportation sector initiatives. We find that setting electricity prices to reflect long-run marginal cost has a significant beneficial impact on the environment, and the expected benefits predicted on theoretical grounds are confirmed by the empirical results. Pricing reform also has a much broader impact than physical approaches to demand side management, although several options such as compact fluorescent lighting appear to have great potential. Options to reduce GHG emissions are limited as Sri Lanka lacks natural gas, and nuclear power is not practical until the system reaches a much larger size. Building the few remaining large hydro facilities would significantly reduce GHG emissions, but these would require costly resettlement programs. Given the inevitability for fossil-fuel baseload generation, both clean coal technologies such as pressurized fluidized bed combustion, as well as steam-cycle residual oil fueled plants merit consideration as alternatives to the conventional pulverized coal-fired plants currently being considered Transportation sector measures necessary to ameliorate local urban air pollution problems, such as vehicle inspection and maintenance programs, also bring about significant reductions of GHG emissions.

The Economics of Conserved-Energy "Supply" Curves

Steven E. Stoft

DOI: 10.5547/ISSN0195-6574-EJ-Vol16-No4-5
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This paper develops the theoretical underpinnings of conservation "supply" curves (CSCs), and in doing so uncovers several problems with current procedures for their construction. The CSC is shown to be derivable from a production isoquant, and not to be a true supply curve. The traditional algorithm for constructing a CSC from discrete measures is shown to be suboptimal, contrary to prior claims. Omitting conservation measures from consideration can lead to systematic, excessive conservation. The CSC concept is extended from, constant-service to constant-utility measures, and an improved approximation is, suggested for the cost of conserved energy (CCE) of measures that cause rebound. The appendix provides a formula for CCE that is simple yet more general than the one currently in use, but shows that even with this, generalization, CSCs cannot be constructed for a world with fluctuating energy prices.