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Energy Journal Issue

The Energy Journal
Volume 38, Number 1

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The CO2 Content of Consumption Across U.S. Regions: A Multi-Regional Input-Output (MRIO) Approach

Justin Caron, Gilbert E. Metcalf, and John Reilly

DOI: 10.5547/01956574.38.1.jcar
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Using a multi-regional input-output (MRIO) framework, we estimate the direct and indirect carbon dioxide (CO2) content of consumption across regions of the United States. We improve on existing estimates by accounting for emissions attributable to domestically and internationally imported goods using data describing bilateral trade between U.S. states and with international countries and regions. This paper presents two major findings. First, attributing emissions to states on a consumption basis leads to very different state-level emissions responsibilities than when attributed on a production basis; for example, California's emissions are over 25 percent higher. Second, heterogeneity of emissions across trading partners significantly affects the indirect emissions intensity of consumption (kg of carbon per $ of consumption), so regional differences in intensity across the U.S. go well beyond direct energy consumption. These findings have implications for evaluating the distributional impacts of national climate policies and for understanding differing incentives to implement state-level policies.

Price Responsiveness in Electricity Markets: Implications for Demand Response in the Midwest

Derya Eryilmaz, Timothy M. Smith, and Frances R. Homans

DOI: 10.5547/01956574.38.1.dery
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This paper provides an empirical analysis of price responsiveness in retail and wholesale markets in the Midcontinent ISO electricity markets. In the retail market, consumers do not often observe real-time price changes and pay a pre-determined flat rate, but are able to respond to price over longer time periods. In the wholesale electricity market, buyers are able to adjust their electricity purchases based on real-time price changes. Our findings show that retail industrial customers respond differently in different across states in the Midwest. We also find differences in real-time wholesale price elasticities between sub-regional pricing hubs in the MISO footprint. Results suggest that the observed differences in price responsiveness of demand across market levels and sub-regions are associated with demand response program adoption.

Electricity Supply Interruptions: Sectoral Interdependencies and the Cost of Energy Not Served for the Scottish Economy

Rahmatallah Poudineh and Tooraj Jamasb

DOI: 10.5547/01956574.38.1.rpou
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Modern economies and infrastructure sectors rely upon secure electricity supplies. Due to sectoral interdependencies, major interruptions cause cascading effects in the economy. This paper investigates the economic effects of major power supply disruptions taking such interdependencies into account. We apply a dynamic in-operability input-output model (DIIM) to 101 sectors, including households, of the Scottish economy in 2009 to explore the direct, indirect, and induced effects of supply interruptions. We estimate the societal cost of energy not supplied (SCENS) due to an interruption. The results show that the most economically affected industries, following an outage, are different from the most inoperable ones. The results also indicate that SCENS varies with the duration of a power cut, ranging from �4,300/MWh for a one-minute outage to �8,100/MWh for a three-hour (and higher) interruption. The results can be used to design policies for contingencies and preventive investments in the power sector.

Climate policies in a fossil fuel producing country – demand versus supply side policies

Taran Fæhn, Cathrine Hagem, Lars Lindholt, Ståle Mæland, and Knut Einar Rosendahl

DOI: 10.5547/01956574.38.1.tfae
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In absence of joint global climate action, several jurisdictions unilaterally restrict their domestic demand for fossil fuels. Another policy option for fossil fuel producing countries, not much analysed, is to reduce own supply of fossil fuels. We explore analytically and numerically how domestic demand and supply side policies affect global emissions, contingent on market behaviour. Next, in the case of Norway, we find the cost-effective combination of the two types of policies. Our numerical results indicate that given a care for global emissions, and a desire for domestic action, about 2/3 of the emission reductions should come through supply side measures.

Should Developing Countries Constrain Resource-Income Spending? A Quantitative Analysis of Oil Income in Uganda

John Hassler, Per Krusell, Abdulaziz B. Shifa, and Daniel Spiro

DOI: 10.5547/01956574.38.1.jhas
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A large increase in government spending following resource discoveries often entails political risks, inefficient investments and increased volatility. Setting up a sovereign wealth fund with a clear spending constraint may decrease these risks. On the other hand, in a capital scarce developing economy with limited access to international borrowing, such a spending constraint may lower welfare by reducing domestic capital accumulation and hindering consumption increases for the currently poor. These two contradicting considerations pose a dilemma for policy makers in deciding whether to set up a sovereign wealth fund with a spending constraint. Using Uganda's recent oil discovery as a case study, this paper presents a quantitative macroeconomic analysis and examines the potential loss of constraining spending through a sovereign wealth fund with a simple spending rule. We find that the loss is relatively low and unlikely to dominate the political risks associated with increased oil spending. Thus, such a spending constraint appears well warranted.

Global LNG Pricing Terms and Revisions: An Empirical Analysis

Mark Agerton

DOI: 10.5547/01956574.38.1.mage
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Asian long-term contracts for liquefied natural gas (LNG) are generally thought to index LNG prices to oil prices. This should mean that LNG and oil prices are cointegrated. However, statistical evidence for cointegration using Japanese data is not strong. To resolve this puzzle, I examine 16 Japanese, South Korean, Taiwanese, and Spanish LNG import price series and allow for multiple, unknown structural breaks in the relationship to oil prices. This resolves the puzzle, and I provide estimates for the timing of breaks and the underlying average pricing terms. I relate these to count, volume, and duration data on long-term contracts and discuss how to interpret econometric estimates in light of contract data. This paper complements existing work on global gas market integration, which largely ignores how discrete changes in oil-indexed long-term contracts will affect empirical relationships.

Nuclear Phase-out Under Stringent Climate Policies: A Dynamic Macroeconomic Analysis

Lucas Bretschger and Lin Zhang

DOI: 10.5547/01956574.38.1.lbre
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In this paper we investigate the long-run economic consequences of phasing out nuclear energy in the presence of stringent climate policies. We integrate endogenous growth theory and technology-based activity analysis into a dynamic numerical general equilibrium model. Both market-based and policy-mandated nuclear phase-out are studied. Using data from the Swiss economy we find that the aggregate welfare loss of carbon policy is as large as 1.21% and that nuclear phase-out raises the loss to 1.58%. Nuclear phase-out has no significant effect on economic growth. Increased investment, induced innovation, and sectoral change are the reasons that the economic impact of nuclear phase-out and the trade-off between energy and climate policy are moderate, once the dynamics of an economy are taken into account. Optimal phase-out time for nuclear depends mainly on future cost escalation in the energy sector. Keywords: Energy and growth, Decarbonization, Nuclear phase out, CGE model, Induced innovation

Welfare Effects of Nonlinear Electricity Pricing

Jung S. You and So Yeong Lim

DOI: 10.5547/01956574.38.1.jyou
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Block pricing is widespread among electricity and water utilities to protect low-income households and to encourage energy conservation through higher marginal prices. However, whether a block pricing system achieves those objectives is controversial. In this article, we analyze the impact of alternative electricity pricing systems on the welfare of consumers for the case of residential electricity block pricing in Korea. To do this, we first develop a theoretical model to compute each household's welfare change under alternative pricing systems. Then, we estimate the residential electricity demand function and compute every household's electricity consumption and expenses under alternative pricing systems. Finally, we compute each household's welfare change and social welfare to draw policy implications. Keywords: Blocking pricing, Electricity demand estimation, Welfare change, Equivalent variation, Price regulation