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Energy Journal Issue

The Energy Journal
Volume 38, Number 4

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Inequality in Energy Intensity in the EU-28: Evidence from a New Decomposition Method

Luigi Grossi and Mauro Mussini

DOI: 10.5547/01956574.38.4.lgro
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This paper investigates inequality in energy intensity between EU-28 member countries over the 2007-2012 period. Inequality in energy intensity is measured by using the Zenga inequality index. The analysis is carried out by measuring inequality from the bottom of the energy intensity distribution to the top. This approach enables to identify the most unequal portions of the energy intensity distribution. To provide information on the causes of inequality at every point of the distribution, we show that inequality can be broken down into three components explaining the roles played by energy transformation, final energy intensity and their interaction in determining inequality in energy intensity. This decomposition reveals the impact of each component of inequality from the bottom of energy intensity distribution to the top. Results show that final energy intensity plays a major role in explaining inequality in the energy intensity distribution. The interaction component explains that EU-28 countries with low energy intensity are more efficient in energy transformation and less energy-intensive in end-use sectors than EU-28 countries with high energy intensity. The energy transformation component is higher when measuring inequality between the countries at the bottom of the distribution and those in the rest of the distribution, suggesting that disparities in energy transformation efficiency play an important role in determining inequality in energy intensity between the least energy-intensive countries and the other countries. The high inequality at the top of the distribution is due to the lower efficiency in energy transformation in the most energy-intensive countries, which reinforces the effect of disparity in final energy intensity between the countries at the top of the distribution and the other countries.

Cooperation on Climate Change under Economic Linkages: How the Inclusion of Macroeconomic Effects Affects Stability of a Global Climate Coalition

Jan Kersting, Vicki Duscha, and Matthias Weitzel

DOI: 10.5547/01956574.38.4.jker
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Game-theoretic models of international cooperation on climate change come to very different results regarding the stability of the grand coalition of all countries, depending on the stability concept used. In particular, the core-stability concept produces an encouraging result that does not seem to be supported by reality. We extend the game-theoretic model based on this concept by introducing macroeconomic effects of emission reduction measures in multiple countries. The computable general equilibrium model DART and damage functions from the RICE model are used to quantify the theoretical model. Contrary to the classical model, we find that, under damages in the IPCC range, the core of the resulting cooperative game is empty and no stable global agreement exists. This is mainly due to fossil fuel exporting countries, which are negatively affected by lower fossil fuel prices resulting from emission reduction measures.

Green Inventions: Is Wait-and-see a Reasonable Option?

Tobias Stucki and Martin Woerter

DOI: 10.5547/01956574.38.4.tstu
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We analyze the potential of different knowledge stocks to decrease the technological gap between the leader in green technology inventions and its followers in order to identify if wait-and-see is a reasonable option to benefit from knowledge. Our econometric results indicate that it is difficult to decrease the technological gap and remain competitive in the generation of green technologies without timely accumulating green knowledge. Although effects from external green knowledge stocks also contribute to decrease the technological gap, the effects are moderate and they cannot compensate the lack of internal green competences. Non-green knowledge stocks even tend to increase the technological gap.

An Econometric Assessment of Electricity Demand in the United States Using Utility-specific Panel Data and the Impact of Retail Competition on Prices

Agustin J. Ros

DOI: 10.5547/01956574.38.4.aros
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This paper uses a panel data of 72 U.S. electricity distribution companies during the period 1972-2009 to estimate structural demand and reduced-form price models. I find the own-price and income elasticity of demand for residential, commercial, and industrial customers that are generally consistent with the published economics literature. While static models work well for residential demand, dynamic models are more appropriate for the larger customer classes who require more time to adjust. Conditioning on the regressors, I find that residential and commercial electricity demand has been increasing slowly while industrial electricity demand and deflated electricity prices have been decreasing. In all price models I find that total factor productivity is consistently the most significant explanatory factor with a 1% increase in total factor productivity resulting in a reduction in deflated electricity prices ranging between 0.05% and 0.30%, depending on the model. Lastly, I find that retail electricity competition is associated with lower deflated electricity prices with the mean total impact being -4.3%, -8.2% and -11.1% for residential, commercial and industrial customers, respectively and with the impact diminishing over the sample period for residential customers, remaining relatively constant for commercial customers and increasing for industrial customers.

Regulating Heterogeneous Utilities: A New Latent Class Approach with Application to the Norwegian Electricity Distribution Networks

Luis Orea and Tooraj Jamasb

DOI: 10.5547/01956574.38.4.lore
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Since the 1990s, electricity distribution networks in many countries have been subject to incentive regulation. The sector regulators aim to identify the best performing utilities as frontier firms to determine the relative efficiency of firms. This paper develops a nested latent class (NLC) model approach where unobserved differences in firm performance are modelled using two `zero inefficiency stochastic frontier' (ZISF) models nested in a `latent class stochastic frontier' (LCSF) model. This captures the unobserved differences due to technology or environmental conditions. A Monte Carlo simulation suggests that the proposed model does not suffer from identification problems. We illustrate the proposed model with an application to Norwegian distribution network utilities for the period 2004-2011. We find that the efficiency scores in both LCSF and ZISF models are biased, and some firms in the ZISF model are wrongly labelled as inefficient. Conversely, inefficient firms may be wrongly labelled as being fully efficient by the ZISF model.

Polypropylene Price Dynamics: Input Costs or Downstream Demand?

Lurion M. De Mello and Ronald D. Ripple

DOI: 10.5547/01956574.38.4.ldem
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This paper investigates price dynamics between polypropylene (PP), propylene, naphtha, and crude oil together with proxies representing PP using industries. We test the dynamics in the South East Asian and North Western European markets. The paper is motivated due to the importance of the propylene and PP market in various downstream industries and importantly to aid producers in having a better understanding of how input costs and demand drive the prices. We employ a vector error correction framework, which facilitates testing different dynamics among the upstream and downstream prices. We find PP prices in both regions to be endogenous, albeit with some evolution over time, i.e., input costs and downstream demand factors tend to drive PP prices. In both regional markets shocks to naphtha and oil prices tend to be driven mostly by each other's price with little effect originating from PP and propylene prices.

The Effect of Transmission Constraints on Electricity Prices

Adam E. Clements, A. Stan Hurn, and Zili Li

DOI: 10.5547/01956574.38.4.acle
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Electricity prices in an interconnected market are influenced by the occurrence of transmission constraints. Until relatively recently, however, the important effects of transmission constraints on both the trajectory and volatility of electricity prices have not played a large role in empirical models of prices. This paper explores the contribution to price volatility in the Queensland electricity market made by transmission constraints. It is found that robust estimation techniques are necessary to guard against incorrect inference in time series models using electricity price data in which severe price spikes occur. The main empirical lesson is that transmission constraints contribute significantly both to the level and variability of price and consequently the performance of a price forecasting model is likely to be improved by incorporating information on transmission constraints. While the general tenor of this conclusion will come as no surprise, the extent and the importance of these effects found in this paper for forecasting price and for computing summary measures like Value-at-Risk serve as a timely reminder to practitioners.

Self-Generation and Households' Willingness to Pay for Reliable Electricity Service in Nigeria

Musiliu O. Oseni

DOI: 10.5547/01956574.38.4.mose
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Many households in developing countries often engage in self-generation to mitigate the impacts of poor public electricity provision. What is less well known, however, is whether (and how) self-generation influences households' willingness to pay (WTP) for service reliability. Using data collected from a sample of Nigerian households, the results reveal that engagement in self-generation is positively correlated with WTP for reliability. This is despite the fact that self-generation reduces the negative welfare impact of unreliability. Further analyses, however, show that backup households' decisions to pay a higher amount than non-backup households are influenced by the costs of self-generation: an increase of N1 (US$0.006) in self-generation's fuel cost per-hour is associated with WTP about N5.22 (US$0.032) more in the monthly bill. However, households' WTP US$0.15-0.16/kWh of improved reliability is smaller than the marginal costs of reliability from self-generation - US$0.27-0.41/kWh. We conclude by discussing the policy implications of our findings.

Energy Efficiency Premiums in Unlabeled Office Buildings

Maya Papineau

DOI: 10.5547/01956574.38.4.mpap
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Whether commercial real estate market participants effectively evaluate building energy efficiency characteristics in the absence of a green label has so far remained unaddressed in the literature. I estimate the energy efficiency premium in unlabeled office buildings by exploiting variation in mandatory building energy standard implementations as a result of the 1992 U.S. Energy Policy Act. A more stringent energy code leads to rent and price premiums of approximately 4 percent and 9 percent, respectively. Heterogeneity in the rent premium is also observed based on who pays the utility bills, as would be expected if market participants correctly evaluate energy conservation characteristics. The rent and price premiums are consistent with full capitalization of the energy savings from a more stringent standard.