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Energy-Efficiency Investments and Public Policy

Adam B. Jaffe and Robert N. Stavins

Year: 1994
Volume: Volume15
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol15-No2-3
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Abstract:
Concern about carbon dioxide as a greenhouse gas has focused renewed attention on energy conservation because fossil fuel combustion is a major source of CO2 emissions. Since it is generally acknowledged that energy use could be significantly reduced through broader adoption of existing technologies, policy makers need to know how effective various policy instruments might be in accelerating the diffusion of these technologies. We examine the factors that determine the rate of diffusion, focusing on (i) potential market failures: information problems, principal-agent slippage, and unobserved costs, and (ii) explanations that do not represent market failures: private information costs, high discount rates, and heterogeneity among potential adopters. Through a series of simulations we explore how alternative policy instruments--both economic incentives and more conventional, direct regulations-could hasten the diffusion of energy-conserving technologies.



Electricity Sectors in Transition

Paul L. Joskow

Year: 1998
Volume: Volume19
Number: Number 2
DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No2-3
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Abstract:
This paper discusses the structural and regulatory changes that are affecting electricity sectors around the world. The direction of change is toward promoting competition in the supply of generation services, restructuring of electricity supply enterprises to clearly separate the provision of competitive generation services from monopoly transmission and distribution services, and the application of new regulations governing access to the transmission and distribution networks and the associated costs of the services provided by these networks. The potential impacts of these changes on electricity costs and prices, economic development, the distribution of income, the choice of generating technologies, research and development and the environment are discussed. Differences in the current performance and the likely future impacts of electricity sector restructuring on developing and developed countries are discussed.



A Thousand Years of Energy Use in the United Kingdom

Roger Fouquet and Peter J. G. Pearson

Year: 1998
Volume: Volume19
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol19-No4-1
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Abstract:
This paper examines the evolution of energy use and its influences in the United Kingdom over the very long run by combining economic literature and statistical information. The paper argues that the provision of energy services, mainly heat and power, is bound by the tensions between a changing growth rate and structure of economic activity and the constraints of energetic resources. After periods of tension, energy price differentials, as well as the diffusion of technological innovation and the development of new fuels, led to new mixes of energy sources to supply heat and power. This paper identifies three major changes that characterise the history of UK energy use: first, the dramatic increase in per capita energy use; second, the shift in methods of supplying energy services, from biomass sources to fossil fuels, from coal to petroleum to natural gas, and from raw forms to more value-added energy sources; and, third, the replacing of direct methods of generating power, from animate sources, wind and water, by the use of mechanical and electrical methods, which have so far depended mainly on fossil fuels. These changes were instrumental in influencing the relationship between GDP and energy use, and also the levels of environmentalpollution.



The Economics of Energy Market Transformation Programs

Richard Duke and Daniel M. Kammen

Year: 1999
Volume: Volume20
Number: Number 4
DOI: 10.5547/ISSN0195-6574-EJ-Vol20-No4-2
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Abstract:
This paper evaluates three energy-sector market transformation programs: the U.S. Environmental Protection Agency's Green Lights program to promote on-grid efficient lighting; the World Bank Group's new Photovoltaic Market Transformation Initiative; and the federal grain ethanol subsidy. We develop a benefit-cost model that uses experience curves to estimate unit cost reductions as a function of cumulative production. Accounting for dynamic feedback between the demand response and price reductions from production experience raises the benefit-cost ratio (BCR) of the first two programs substantially. The BCR of the ethanol program, however, is approximately zero, illustrating a technology for which subsidization was not justified. Our results support a broader role for market transformation programs to commercialize new environmentally attractive technologies, but the ethanol experience suggests moderately funding a broad portfolio composed of technologies that meet strict selection criteria.



The Impact of Automobile Diffusion on the Income Elasticity of Motor Fuel Demand

Francois Lescaroux and Olivier Rech

Year: 2008
Volume: Volume 29
Number: Number 1
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No1-3
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Abstract:
Prompted by the recent surge in light oil product consumption, this paper analyses the demand for non-commercial motor fuel and proposes a long-run forecasting model. In doing so, our aim is to be able to reproduce a few key stylized facts observed in secular evolutions of the motor fuel intensity of GDP and related notably to the derived nature of oil demand. Using a database covering 77 countries over the 1986-1998 period, we explain sequentially the stock of private vehicles per capita and fuel consumption per vehicle. The former is expressed as an S-shaped function of real per-capita income, which takes into account the dynamics specific to the dissemination of a durable good in a population. By explicitly considering the distinct phases of the development of the automobile market, our approach enables us to propose an explanation to the space-time variability in long-run income elasticities reported in the literature � especially its decline as per-capita income increases and the resulting gap between elasticities in emerging countries compared to developed countries. Our two-equation model also enables us to reproduce the bell shaped curve of the motor fuel intensity of GDP as a function of per-capita income, as well as the other principal properties of resource intensity-of-use linked to the process of dematerialization which, for any country, follows the industrialization period.



Learning-by-Doing and the Optimal Solar Policy in California

Arthur van Benthem, Kenneth Gillingham and James Sweeney

Year: 2008
Volume: Volume 29
Number: Number 3
DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No3-7
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Abstract:
Much policy attention has been given to promote fledgling energy technologies that promise to reduce our reliance on fossil fuels. These policies often aim to correct market failures, such as environmental externalities and learning�by-doing (LBD). We examine the implications of the assumption that LBD exists, quantifying the market failure due to LBD. We develop a model of technological advancement based on LBD and environmental market failures to examine the economically efficient level of subsidies in California�s solar photovoltaic market. Under central-case parameter estimates, including nonappropriable LBD, we find that maximizing net social benefits implies a solar subsidy schedule similar in magnitude to the recently implemented California Solar Initiative. This result holds for a wide range of LBD parameters. However, with no LBD, the subsidies cannot be justified by the environmental externality alone.



Jump Processes in the Market for Crude Oil

Neil A. Wilmot and Charles F. Mason

Year: 2013
Volume: Volume 34
Number: Number 1
DOI: 10.5547/01956574.34.1.2
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Abstract:
In many commodity markets, the arrival of new information leads to unexpectedly rapid changes--or jumps--in commodity prices. Such arrivals suggest the assumption that log-return relatives are normally distributed may not hold. Combined with time-varying volatility, the possibility of jumps offers a potential explanation for fat tails in oil price returns. This article investigates the potential presence of jumps and time-varying volatility in the spot price of crude oil and in futures prices. The investigation is carried out over three data frequencies (Monthly, Weekly, Daily), which allows for an investigation of temporal properties. Employing likelihood ratio tests to compare among four stochastic data-generating processes, we find that that allowing for both jumps and time-varying volatility improves the model's ability to explain spot prices at each level of temporal aggregation; this combination also provides a statistically compelling improvement in model fit for futures prices at the Daily and Weekly level. At the monthly level, allowing for jumps does not provide a statistically significant increase in model fit after incorporating time-varying volatility into the model.



Diffusion of Climate Technologies in the Presence of Commitment Problems

Taran Faehn and Elisabeth T. Isaksen

Year: 2016
Volume: Volume 37
Number: Number 2
DOI: 10.5547/01956574.37.2.tfae
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Abstract:
Publicly announced greenhouse gas (GHG) mitigation targets and emissions pricing strategies by individual governments may suffer from inherent commitment problems. When emission prices are perceived as short-lived, socially cost-effective upfront investment in climate technologies may be hampered. This paper compares the social abatement cost of a uniform GHG pricing system with two policy options for overcoming such regulatory uncertainty: One combines the emissions pricing with a state guarantee scheme whereby the regulatory risk is borne by the government and one combines the system with subsidies for upfront climate technology investments. A technology-rich computable general equilibrium model is applied that accounts for abatement both within and beyond existing technologies. Our findings suggest a tripling of abatement costs if domestic climate policies fail to stimulate investment in new technological solutions. Since the cost of funding investment subsidies is found to be small, the subsidy scheme performs almost as well as the guarantee scheme.



Market and Non-market Policies for Renewable Energy Diffusion: A Unifying Framework and Empirical Evidence from China’s Wind Power Sector

Yang Liu and Taoyuan Wei

Year: 2016
Volume: Volume 37
Number: China Special Issue
DOI: 10.5547/01956574.37.SI1.lyan
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Abstract:
We provide a comprehensive framework of analyzing the diffusion process of renewable technology, incorporating epidemic and pecuniary effects. Relying on a panel dataset consisting of information from 1207 CDM wind projects in thirty provinces over the period 2004-2011, we find strong evidence on the dominant role of the epidemic effect and new evidence on pecuniary effects that generate a diminishing marginal effect of profitability in inducing technology adoption. Our numerical simulation demonstrates that the epidemic effect can play a quantitatively important role in the spread of renewable energy technology and markedly enhance the optimal social welfare. Our findings convey important policy implications for regulators when choosing policy instruments to enhance the diffusion and adoption of clean technology. Price instruments should be complemented by a wide range of non-market instruments to address non-market barriers. Policy interventions should be taken using a systemic approach.



Oil Prices and Banking Instability: A Jump-Diffusion Model for Bank Capital Structure

Willi Semmler and Samar Issa

Year: 2019
Volume: Volume 40
Number: Special Issue
DOI: 10.5547/01956574.40.SI2.wsem
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Abstract:
We develop an empirical model of bank capital structure to study the impact of large oil shocks on overleveraging of banks which presents severe challenges for banks' balance sheet management. The measure of overleveraging builds on the Stein (2012) model by adding a jump-diffusion component that captures the jump size and intensity of predictors such as oil prices and political instability. Overleveraging is derived and estimated for a sample of six banks in three oil-producing countries and Western countries using the Markov Chain Monte Carlo (MCMC) method, for the years 2006-2016. The estimation of the optimal debt shows that most of the banks in this context had a high optimal debt around 2008, overlapping with the oil price shock. In addition, most of the predictors, namely oil prices and political instability factors proxied by terrorism, political corruption, and military expenses, regularly appeared in volatility and jump intensity factors.




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