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Prepress Content: The following article is a preprint of a scientific paper that has completed the peer-review process and been accepted for publication within Economics of Energy & Environmental Policy.
While the International Association for Energy Economics (IAEE) makes every effort to ensure the veracity of the material and the accuracy of the data therein, IAEE is not responsible for the citing of this content until the article is actually printed in a final version of Economics of Energy & Environmental Policy. For example, preprinted articles are often moved from issue to issue affecting page numbers, and actual volume and issue numbers. Care should be given when citing Economics of Energy & Environmental Policy preprint articles.

Economics of Energy & Environmental Policy
Volume 9, Number 2

Resource Adequacy with Increasing Shares of Wind and Solar Power: A Comparison of European and U.S. Electricity Market Designs

Audun Botterud and Hans Auer

DOI: 10.5547/2160-5890.9.1.abot
View Abstract

We raise the question if improvements to current energy-only markets are sufficient to maintain resource adequacy in electricity markets or whether the rapid increase in wind and solar power gives stronger arguments for additional capacity mechanisms. A comparative analysis between Europe and the United States reveals some fundamental differences, but also many similarities in electricity market design on the two continents. We provide a list of general and specific recommendations for improved electricity markets and argue that lessons can and should be learned in both directions. The key to achieve a market-compatible integration of renewable energy is to focus on correct price formation in the short-term. Increased demand-side participation, improved pricing during scarcity conditions, and a transition from technology-specific subsidies of renewables towards adequate pricing of carbon emissions are important measures towards this end. In contrast, an increasing reliance on administrative capacity mechanisms would bring the industry back towards the centralized integrated resource planning that prevailed at the outset of electricity restructuring more than 25 years ago.

The Impact of Intermittent Power Generation on the Wholesale Electricity Prices of the MIBEL Iberian Market

Paulo Pereira da Silva and Paulo Horta

DOI: 10.5547/2160-5890.9.1.pdas
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This study addresses the effect of intermittent renewable energy generation on the dynamics of electricity prices of the Iberian market (Spain and Portugal) during the period 2010-2015. The results indicate that intermittent renewable energy has a material negative effect on electricity price, consistent with the presence of a merit-order effect. Still, that effect varies with the technology employed: wind power produces a greater impact on price vis-a-vis solar photovoltaic energy. Daily wind supply and daily demand display a higher correlation than daily solar photovoltaic power and daily demand. That implies that wind supply can be used more effectively as a hedging tool for demand variation, thereby bringing about greater price impact. Notably, there is no evidence that the impact of intermittent renewable electricity penetration has been declining over time or that marginal negative returns result from additional installed capacity at this point. Finally, the findings of this study suggest that market coupling weighs (negatively) on the elasticity of price to intermittent renewable energy production. This result is consistent with the notion that further market integration improves risk sharing and efficient resource allocation.

Shale Gas and Oil Development: A Review of the Local Environmental, Fiscal, and Social Impacts

Claudia Hitaj, Irene M. Xiarchos, Roger Coupal, and Timothy W. Kelsey, and Richard S. Krannich

DOI: 10.5547/2160-5890.9.1.chit
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In the early 2000s, advances in horizontal drilling and hydraulic fracturing technologies led to a veritable boom in the extraction of natural gas and oil from shale plays. In this review article, we discuss the local, state, and federal regulatory context in which this shale gas and oil production occurs and review how it affects local communities, the environment, and government income and spending. We find that long-term employment effects are relatively low, while shale development is associated with short-term boom and bust cycles that affect both employment and local and state finances. Environmental and community impacts include noise, light, and air pollution, increased risk of soil or water contamination, increased truck traffic, and increased demand for housing and schooling. The distribution of local costs and benefits hinges on ownership of oil and gas rights. There is variation across states and localities in how resource extraction is taxed and how these funds are used, including the extent to which the funds are targeted to specific purposes and whether they are spent in the short or long term. These policy differences can determine the ability of states and localities to prosper from this resource boom over the long term.

The Synergies Between EU Climate and Renewable Energy Policies-Evidence from Portugal Using Integrated Modelling

Sara Proença and Patrícia Fortes

DOI: 10.5547/2160-5890.9.1.spro
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In the current debate about the cost-effectiveness of the EU climate and energy policy, the coexistence of greenhouse gas (GHG) emissions reduction and renewable energy targets, as well as the EU Emissions Trading Scheme (ETS), have been subject to some criticism. In this paper we explore the interactions between EU climate and renewable energy targets and policies, by assessing the synergies and trade-offs between alternative policy designs and implementation mechanisms to cope with the EU GHG emissions reduction and renewable energy targets for 2030. The analysis is carried out by using the Hybrid Bottom-up General Equilibrium Model (HyBGEM) and taking Portugal as a case study. Results show that the current segmentation of the EU emissions market (between ETS and non-ETS sectors) leads to a costly emissions mitigation. Moreover, imposing a renewable energy target on top of the emissions constraints may attenuate the GHG abatement costs from second-best induced gains in efficiency. Renewable energy subsidies act as a correction of pre-existing taxation on the Portuguese economy, countervailing excess burden on abating carbon emissions. These findings suggest that the cost-effectiveness of climate mitigation and energy policies is interlinked with the country's economic, financial and energy characteristics, emphasizing the need to consider the specificities of each Member State when designing policy mixes.

Beyond the inverted U-shape: Challenging the long-term relationship of the Environmental Kuznets Curve hypothesis

Lars Sorge and Anne Neumann

DOI: 10.5547/2160-5890.9.1.lsor
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This paper empirically tests the validity of the postulated Environmental Kuznets Curve for a panel of 69 countries from 1971 to 2014 which are clustered into all-, high-, middle-, and lower-income groupings. Since the quadratic EKC specification between carbon dioxide emissions and GDP produces highly biased results in favour of an inverted U-shaped pattern, we adopt a cubic formulation and estimate the long-term coefficients signs and significance accounting for country specific slope heterogeneity. Our empirical results rather support a N-shaped than an inverted U-shaped pattern for the pollution income relationship particularly in the all-income panel. We find no evidence of an inverted U-shaped pattern associated with the EKC hypothesis in any panel. Our analysis indicates that promoting economic growth is not a panacea to simply grow out of pollution related problems in the long-term.

Measuring Energy Efficiency: Accounting for the Hidden Costs of Product Failure

Art Fraas and Sofie E. Miller

DOI: 10.5547/2160-5890.9.2.afra
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Several recent studies suggest that minimum energy efficiency standards for appliances have resulted in higher-quality products with little or no increase in price. We have conducted case studies for the two major household appliances�clothes washers and refrigerators�subject to Department of Energy (DOE) energy efficiency standards implemented over the 2001 to 2011 period. We identify three issues plaguing appliances that yielded lower cost savings than projected in DOE�s ex ante analyses: (1) product life and reliability; (2) greater energy usage than anticipated; and (3) additional operation and maintenance costs. These two case studies illustrate the need to consider the potentially substantial costs of operation and repair in conducting retrospective analyses of DOE energy efficiency standards. In addition, these case studies identify the limited information available to consumers on repair and replacement rates at the time of purchase and suggest some possible policy responses.