Energy Journal Issue

The Energy Journal
Volume 41, Number 3
View all executive summaries



IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

View Cart  

Time-of-Use Electricity Pricing and Residential Low-carbon Energy Technology Adoption

Jing Liang, Pengfei Liu, Yueming Qiu, Yi David Wang, and Bo Xing

DOI: 10.5547/01956574.41.2.jlia

View Executive Summary
View Abstract

Abstract:
This paper provides the first empirical evidence on the correlation between Time-Of-Use (TOU) electricity pricing and the adoption of energy efficient appliances and solar panels. We use household-level data in Phoenix, Arizona from an appliance saturation survey of about 16,000 customers conducted by a major electric utility. Our empirical results show that TOU consumers are associated with 27% higher likelihood to install solar panels but not more likely to adopt energy-efficient air conditioning based on the propensity score matching and coarsened exact matching methods. The findings highlight that policy makers could combine TOU and solar panels when implementing educational programs or when giving out financial incentives to consumers. Our results imply that TOU is associated with a similar impact of the incentive offered by $2,070~$10,472 tax credits or rebates on solar adoption.




Relative Effectiveness of Energy Efficiency Programs versus Market Based Climate Policies in the Chemical Industry

Gale A. Boyd and Jonathan M. Lee

DOI: 10.5547/01956574.41.3.gboy
View Abstract

Abstract:
This paper addresses the relative effectiveness of market vs program based climate policies. We compute the carbon price resulting in an equivalent reduction in energy from programs that eliminate the efficiency gap. A reduced-form stochastic frontier energy demand analysis of plant level electricity and fuel data, from energy-intensive chemical sectors, jointly estimates the distribution of energy efficiency and underlying price elasticities. The analysis obtains a decomposition of efficiency into persistent (PE) and time-varying (TVE) components. Total inefficiency is relatively small in most sectors and price elasticities are relatively high. If all plants performed at the 90th percentile of their efficiency distribution, the reduction in energy is between 4% and 37%. A carbon price averaging around $31.51/ton CO2 would achieve reductions in energy use equivalent to all manufacturing plants making improvements to close the efficiency gap.




Do Energy Prices Drive Outward FDI? Evidence from a Sample of Listed Firms

Gregoire Garsous, Tomasz Kozluk, Dennis Dlugosch

DOI: 10.5547/01956574.41.3.ggar

View Executive Summary
View Abstract

Abstract:
Affordable energy is often argued to be a vital condition for manufacturing industries to be able to compete on global markets. Consequently, the idea of introducing a (unilateral) carbon tax is usually opposed on the grounds of potential losses of competitiveness and leakage of economic activity abroad. In this paper, we shed light on one potential channel of such effects - the impact of energy prices on firms' outward FDI. Using an instrumental variable strategy we estimate the longer-term effects on a sample of listed firms from 9 manufacturing sectors in 24 OECD countries over 1995-2008. The results suggest that relative energy prices - that is the difference between domestic energy prices and prices in the potential FDI destination - are significantly and asymmetrically related to firms' outward FDI asset share. Only firms that faced increases in the relative energy prices have increased their international asset position and this effect was relatively small.




Wind Turbine Shutdowns and Upgrades in Denmark: Timing Decisions and the Impact of Government Policy

Jonathan A. Cook and C.-Y. Cynthia Lin Lawell

DOI: 10.5547/01956574.41.3.jcoo

View Executive Summary
View Abstract

Abstract:
For policymakers, an important long-run question related to the development of renewable industries is how government policies affect decisions regarding the scrapping or upgrading of existing assets. This paper develops a dynamic structural econometric model of wind turbine owners' decisions about whether and when to add new turbines to a pre-existing stock, scrap an existing turbine, or replace old turbines with newer versions (i.e., upgrade). We apply our model to owner-level panel data for Denmark over the period 1980-2011 to estimate the underlying profit structure for small wind producers (who constitute the vast majority of turbine owners in the Danish wind industry during this time period), and evaluate the impact of technology and government policy on wind industry development. Our structural econometric model explicitly takes into account the dynamics and interdependence of shutdown and upgrade decisions, and generates parameter estimates with direct economic interpretations. Results from the model indicate that the growth and development of the Danish wind industry were driven primarily by government policies as opposed to technological improvements. We use the parameter estimates to simulate counterfactual policy scenarios in order to analyze the relative effectiveness and cost-effectiveness of the Danish feed-in-tariff and replacement certificate programs. Results show that both of these policies significantly impacted the timing of shutdown and upgrade decisions made by small wind producers and accelerated the development of the wind industry in Denmark. We also find that when compared with the feed-in-tariff; a declining feed-in-tariff; and the replacement certificate program and the feed-in-tariff combined, the replacement certificate program was the most cost-effective policy both for increasing payoffs of small wind producers and also for decreasing carbon emissions.




Avoiding Pitfalls in China’s Electricity Sector Reforms

Michael R. Davidson and Ignacio Pérez-Arriaga

DOI: 10.5547/01956574.41.3.mdav
View Abstract

Abstract:
China has recently reinvigorated reforms to its electricity sector, focusing on increasing the role of markets and improving regulation. While restructuring an electricity sector is difficult and can require years of detailed planning, China's approach relies upon broad central guidelines with many details and initiatives left to provincial governments. We assess the current state of reform efforts through the lens of five "pitfalls" based on well-established regulatory economics literature and international lessons, focusing on contract structure, system operation, and regulation. We find that while market efforts are likely to achieve efficiency gains with respect to the planned system, they may fall short of crucial functions of a market, such as incentivizing flexibility given increasing renewable energy penetrations. Making markets work will likely require a stronger centralization of market design and regulatory oversight authorities.




Disentangling Costs of Persistent and Transient Technical Inefficiency and Input Misallocation: The Case of Norwegian Electricity Distribution Firms

Subal C. Kumbhakar, Orjan Mydland, Andrew Musau, and Gudbrand Lien

DOI: 10.5547/01956574.41.3.skum
View Abstract

Abstract:
Numerous studies have focused on estimating technical inefficiency in electricity distribution firms. However, most of these studies did not distinguish between persistent and transient technical inefficiency. Furthermore, almost none of the studies estimated the cost of input misallocation arising from non-optimal use of inputs. One reason is that the cost function (input distance function) typically used in the literature does not allow for the separation of technical inefficiency and allocative inefficiency. In this study, we estimate both the persistent and transient components of technical inefficiency and input misallocation of Norwegian electricity distribution firms, using panel data from 2000 to 2016. Our modeling and estimation strategy is to use a system approach, consisting of the production function and the first-order conditions of cost minimization. Input misallocation for each pair of inputs is modeled via the first-order conditions of cost minimization. We also estimate the costs of each component of technical inefficiency and input misallocation by deriving the cost function for a multi-output separable production technology. Our modeling and estimation strategy handles endogeneity of inputs. Finally, we allow for inclusion of determinants of persistent and transient technical inefficiency. Our results show that the costs of input misallocation of Norwegian electricity distribution firms are non-negligible.




Intra-day Electricity Demand and Temperature

James McCulloch and Katja Ignatieva

DOI: 10.5547/01956574.41.3.jmcc
View Abstract

Abstract:
The objective of this paper is to explain the relationship between high frequency electricity demand, intra-day temperature variation and time. Using the Generalised Additive Model (GAM) framework we link high frequency (5-minute) aggregate electricity demand in Australia to the time of the day, time of the year and intra-day temperature. We document a strong relationship between high frequency electricity demand and intra-day temperature. We show a superior model fit when using Daylight Saving Time (DST), or clock time, instead of the standard (solar) time. We introduce the time weighted temperature model that captures instantaneous electricity demand sensitivity to temperature as a function of the human daily activity cycle, by assigning different temperature signal weighting based on the DST time. The results on DST and time weighted temperature modelling are novel in the literature and are important innovations in high frequency electricity demand forecasting.




Global Climate Change Mitigation: Strategic Incentives

Sigit Perdana and Rod Tyers

DOI: 10.5547/01956574.41.3.sper
View Abstract

Abstract:
Central to global agreement on carbon emissions are strategic interactions amongst regions over abatement policy and the benefits to be shared. These are re-examined in this paper, in which benefits from mitigation stem from a meta-analysis that links carbon concentration with region-specific measures of economic welfare. Implementation costs are then drawn from a highly disaggregated model of global economic performance. Multiplayer games are then constructed, the results from which are sensitive to embodied temperature scenarios and discount rates but robustly reveal that the U.S. and China would be net gainers from unilateral implementation in net present value terms. The dominant strategy for all other countries is to free ride. Net gains to the three large economies are bolstered by universal adoption, which could be induced by affordable side payments. Yet the downside is that net gains to all regions are negative over two decades, rendering commitment to abatement politically difficult.




Revisiting the Income Elasticity of Energy Consumption: A Heterogeneous, Common Factor, Dynamic OECD & non-OECD Country Panel Analysis

Brantley Liddle and Hillard Huntington

DOI: 10.5547/01956574.41.3.blid
View Abstract

Abstract:
The current paper contributes to the literature on the relationship between economic development and energy demand by assembling a wide panel dataset of energy consumption and prices for 37 OECD and 41 non-OECD countries. The unbalanced data spans 1960-2016, with the full 56 years of data for 17 countries and all countries having at least 18 years. In addition, our dynamic panel estimates address nonstationarity, heterogeneity, and cross-sectional dependence. Most results suggest that the GDP elasticity is less than unity (e.g., 0.7) - i.e., energy intensity will fall with economic growth. Most evidence suggests that the GDP elasticity is similar for OECD and non-OECD countries, and for non-OECD countries, similar across income-bands. Also, there is no evidence that individual country elasticity estimates (for GDP or prices) vary systematically according to income. The price elasticity is larger (in absolute terms) for OECD than for non-OECD countries - indeed, it is typically insignificant for non-OECD countries.




The Vertical and Horizontal Distributive Effects of Energy Taxes: A Case Study of a French Policy

Thomas Douenne

DOI: 10.5547/01956574.41.3.tdou
View Abstract

Abstract:
This paper proposes a micro-simulation assessment of the distributional impacts of the French carbon tax. It shows that the policy is regressive, but could be made progressive by redistributing the revenue through flat-recycling. However, it would still generate large horizontal distributive effects and harm a significant share of low-income households. The determinants of the tax incidence are characterized precisely, and alternative targeted transfers are simulated on this basis. The paper shows that given the importance of unobserved heterogeneity in the determinants of energy consumption, horizontal distributive effects are much more difficult to tackle than vertical ones.




Pathways to 100% Electrification in East Africa by 2030

Giacomo Falchetta, Manfred Hafner, and Simone Tagliapietra

DOI: 10.5547/01956574.41.3.gfal
View Abstract

Abstract:
In spite of abundant generation potential, as of 2019 East Africa has an electricity access level of 36%, with over 140 million people without service. Here, a bottom-up geospatial model (OnSSET) is used to estimate least-cost pathways to universal access to electricity by 2030 for different consumption-tier objectives under three regional grid electricity generation mix scenarios. Results suggest median total required investments of $57 and $110 billion for guaranteeing basic (160 and 44 kWh/person/year in urban and rural areas) and moderate - i.e. including potential to enable some productive uses - (423 and 160 kWh/person/year) consumption for newly connected households by 2030, respectively. This corresponds to an average of $5.6 billion/year, and implies median capacity additions of 12.2 GW (59% on-grid, 37% mini-grids, and 4% standalone solutions). At least further $2.7 billion/year in generation capacity are required to satisfy the projected demand growth from already electrified consumers. A grid electricity scenario with 25% lower photovoltaic costs and a higher penetration of renewables reveals to be up to 10% cheaper and 46% less carbon-intensive, while also requiring less up-front investment. To achieve such objectives, investment must be channelled within an enabling policy environment, which we discuss.




Book Reviews

How Solar Energy Became Cheap: A Model for Low-Carbon Innovation, by Gregory F. Nemet - Book Review by: John Bistline

Policy, Regulation, and Innovation in China’s Electricity and Telecom Industries, edited by Loren Brandt and Thomas G. Rawski - Book Review by: Michael G. Pollitt





 

© 2020 International Association for Energy Economics | Privacy Policy | Return Policy