Search

The objective of this paper is to analyze the impacts of monetary policy on determination and dynamics of coal prices in a closed economy setting in the USA. Economic theory tells us that if a change in macroeconomic policy has raised (lowered) the real interest rate above (below) its long-run equilibrium level, then coal prices should fall below (rise above) their long-run equilibrium path. Likewise, an unanticipated increase in the expected long-run rate of money growth increases the coal prices in the long-run equilibrium path and in turn the current coal price. Finally, when there is a change in the level of money supply, the price of coal initially overshoots its long-run equilibrium. Empirical time-series analysis confirms that coal prices react to monetary policy in the long run, i.e., monetary policy has a non-neutral impact on coal prices. Long-term adjustment is more pronounced for coal prices than for manufactured goods and services. In the short run, the degree of immediate adjustment or overshooting for coal prices in response to monetary policy shocks is, surprisingly, lesser than for manufactured goods and services. [ABSTRACT FROM AUTHOR]

We examine policy instruments that aim to decarbonize electricity production by replacing fossil fuel energy with intermittent renewable sources, namely, wind and solar power. We consider a model of investment, production, and storage with two sources of energy: one is clean but intermittent (wind or solar), whereas the other one is reliable but polluting (thermal power). We first determine the first-best energy mix depending on the social cost of polluting emissions. We then show that, to implement the socially efficient energy mix without a carbon tax, feed-in tariffs and renewable portfolio standards must be complemented with a price cap and volume-limited capacity payments. [ABSTRACT FROM AUTHOR]

Using high-frequency data, I show that the supply of electricity by solar households can be downward sloping. I document that households receiving higher prices to sell electricity increase their own consumption as their panels produce more, relative to households receiving lower prices. I test several competing explanations and show that a dollar of electricity income increases electricity expenditures by 23 cents, an effect much larger than a standard income response. The fact that solar households treat income from electricity production as "electricity money" means that production subsidies may decrease the supply of electricity by solar homes. [ABSTRACT FROM AUTHOR]

The unparalleled surge of the crude oil price after 2003 has triggered a heated scientific and public debate about its ultimate causes. Unexpected demand growth particularly from emerging economies appears to be the most prominently supported reason among academics, suggesting that market participants did not anticipate future market conditions. We study the price dynamics after 2003 in the global crude oil market using a structural VAR model, paying particular attention to anticipative market activities. These are inferred from a time series of news items measuring the flow of publicly available information relevant for the crude oil market. We find that such forward-looking demand activities—instead of demand arising from real economic activity—have played an important role for the run-up in the price of crude oil after 2003. This indicates that market participants have anticipated a higher demand in the future, rather than having reacted to unexpected shocks from the current business cycle. We additionally find that emerging economies have not majorly contributed to the price surge. [ABSTRACT FROM AUTHOR]

I consider a "low-ambition" (LA) country with no current climate policy, with two sectors. Sector 1 can in principle sell an unlimited amount of carbon offsets to a bloc of "high-ambition" (HA) countries. A condition for access to the right for sector 1 to sell unlimited offsets is that sector 2 of the LA country implements a comprehensive carbon tax. When the two sectors have equal size, and public and private revenues are valued equally by the LA government, a carbon tax in sector 2, equal to the offset price for sector 1, can be incentivized. The HA country bloc then buys offsets from the LA country at a price equaling its carbon externality cost. When sector 1 is larger (smaller) than sector 2, the offset price in sector 1 will be lower (higher) than the carbon tax in sector 2. When public funds are more valuable than private funds to the LA government, the implementable carbon tax is higher, and the optimal offset price lower. The model provides a novel mechanism by which a bloc of HA countries can incentivize LA countries to implement enhanced greenhouse gas mitigation. [ABSTRACT FROM AUTHOR]

This paper estimates indirect benefits of improved air quality induced by hydraulic fracturing, or "fracking" in the continental United States. The recent increase in natural gas supply led to displacement of coal-fired electricity by cleaner natural gas-fired generation. Using detailed spatial panel data comprising the near universe of air quality monitors merged with US power plant locations, we find that coal generation decreased by 28% attributable to lower natural gas prices. Using an IV identification strategy to isolate fracking's impact on natural gas prices, we identify a 4% decrease in average PM2.5 levels due to decreased coal generation. These benefits vary geographically; air pollution levels decreased most in parts of Alabama by 35%. Back of the envelope calculations imply accumulated health benefits of roughly $17 billion annually. [ABSTRACT FROM AUTHOR]

Many studies have been focusing on the impact of the shale gas boom on our society, but the reverse relationship is not well documented. The objective of this paper is to examine the impact of oil and gas prices on shale gas drilling activities. We analyze the well-level production data from all major producing shale gas plays in the United States (US) and identify a major productivity shock in 2009. We then estimate the price elasticity of shale gas drilling using the econometric methods. Our results show that the oil price elasticity increases from insignificant in the pilot stage (2000–2008) to 1.1 (significant) in the expansion stage (2009–2016), and the gas price elasticity increases from insignificant in the pilot stage to 0.6 (significant) in the expansion stage. This is the first quantitative estimation of shale gas drilling responsiveness to oil and gas prices based on near-full-sample well-level drilling data while taking account the structural break. The change in price elasticities indicates that the shale gas drilling becomes more responsive to oil and gas prices after the major productivity shock around 2009. The high oil-price elasticity after 2009 shows the importance of natural gas condensate in supporting shale gas drilling. The estimated oil and gas elasticities are important to forecasting shale gas supply and economic impacts in the new normal. • Examine the influence of energy prices on shale gas drilling and production. • Define two phases in shale gas development: the pilot stage and expansion stage. • Estimate the price elasticities using play-level fixed effects model for the first time. • Oil price elasticity increases from insignificant to 1.1 after the productivity shock. • Gas prices elasticity increases from insignificant to 0.6 across the structural break. [ABSTRACT FROM AUTHOR]

Capacity auctions with reliability options are seen as a promising possibility to reduce the investment risk for electricity generators as well as to set incentives for sufficient investments in generating capacity. However, there has been little attention so far on the interaction between a capacity market and an increasing share of renewable energy. In a first step we formalize the functioning of capacity auctions with reliability options. We improve their incentive regulation to allow effective incentives for sufficient investments. In a second step we study, with comparative statics, how an increasing share of renewable energy, varying carbon emission costs and the existing capacity mix influence the outcome of a capacity auction. For an increasing share of renewable energy, capacity auctions direct investments to more flexible power plants. This opposes the merit order effect of renewable energy which is observed at energy-only markets. A capacity market can therefore prevent missing flexibility feared at energy-only markets as a result of an increasing share of renewable energy. [ABSTRACT FROM AUTHOR]

This paper examines the incentives for efficient pricing mechanism in markets with non-convexities. The wholesale electricity market is a prominent example. Ideally, an efficient pricing mechanism produces market signals that reflect costs and scarcities, incents price-taking behavior and yields sufficient revenues to attract new investment. However, under non-convex conditions, there is no assurance that these goals can be fully achieved, and market equilibrium may not even exist. Previous studies on markets with convexities have been focusing on the revenue sufficiency problem. Positive results on incentives are relatively scarce. This paper is intended to fill the gap. With non-convexities, quasi-equilibrium entails solving separately a non-convex allocation model and a convexified pricing model with solution support payments in settlement. We consider three convex relaxation methods, including Lagrangian dualization, convex-hull relaxation and integer relaxation (Integer relaxation refers to a convex relaxation of mixed integer programing problem in which the integer variables are linearized). We show that quasi-equilibrium pricing is dominant strategy incentive compatible in the limit and the total side payment divided by the total surplus approaches zero when the market size (e.g., measured by the number of consumers) increases to infinity. In essence, the quasi-equilibrium pricing mechanism extends efficient pricing principles from a convex market environment to one that is non-convex in ways that preserve economic efficiency, incentive compatibility and revenue sufficiency. These results are illustrated in the context of wholesale electricity markets. Since 2014, price formation issues have been vigorously debated in the U.S. including FERC's conferences and proceedings with comments from academics, policy and business communities across ISO/RTO regions. Convex-hull pricing is generally considered an ideal solution but it remains computationally prohibitive. In this paper, we identify conditions under which the integer relaxation method can produce close and sometimes even exact approximations to convex-hull pricing. In April 2019, FERC authorized the use of integer relaxation as a just and reasonable pricing method for fast-start units in PJM's energy markets. [ABSTRACT FROM AUTHOR]

This paper estimates country‐wide and state‐level income and price elasticities of electricity demand in Australia for the period 1999Q1–2013Q2 using the National Electricity Market data and the autoregressive‐distributed lag model. The results suggest that the long‐run income and price elasticities are inelastic and are statistically significant with theoretically consistent signs. The country‐wide income and price elasticities are estimated to be 0.41 and −0.38, respectively. It is also found that there exists state‐specific heterogeneity in both speed and magnitude of the electricity consumption adjustment in response to changes in income and electricity price. These results have important policy implications, including the need to use state‐specific elasticities in the scenario analysis of the energy pricing policy. [ABSTRACT FROM AUTHOR]

This paper considers the evidence on real commodity prices from 1900 to 2015 for 40 commodities, representing 8.72 trillion US dollars of production in 2011. In doing so, it suggests and documents a comprehensive typology of real commodity prices, comprising long-run trends, medium-run cycles, and short-run boom/bust episodes. The main findings can be summarized as follows: (1) real commodity prices have been on the rise—albeit modestly—from 1950; (2) there is a pattern—in both past and present—of commodity price cycles, entailing large and long-lived deviations from underlying trends; (3) these commodity price cycles are themselves punctuated by boom/bust episodes which are historically pervasive. [ABSTRACT FROM AUTHOR]

Abstract An important synergy exists between electricity supply security and sustainable economic development. However, distortions in the water-energy equilibrium (especially for electricity systems that heavily depend on hydropower renewable energy) and operational inefficiency in the transmission and distribution networks can affect electricity supply negatively and distort this synergy. Given the irreversible nature of capital investments and the time-dependent nature of learning abilities and information flow, it is critical to delineate the short- and long-run effects of system losses and distortions in the water-energy equilibrium on electricity availability. This study applies an econometric approach to study the case of Ghana from 1970 to 2016. Distortions in the water-energy equilibrium negatively affect electricity supply in the short- and long-run. Investment in storage renewable hydro will ensure operational flexibility and compensate for the variability in water flow. Moreover, storage hydropower is a vital asset for the development of non-flexible renewables (i.e. wind and solar) due to the synergy that exists between them. System losses have a concave effect on electricity supply, with the tolerable rate determined as 6.65%. Current levels suggest that the country should cut down on system losses by 13.35%; this requires a significant investment in transmission and distribution networks and meters. Highlights • Distortions in the water-energy equilibrium decreases electricity availability. • Storage renewable hydro should be developed in the future. • System losses have a concave effect on electricity supply with a tolerable rate of 6.65%. • Higher economic growth is compatible with the SE4ALL and energy security goals. • Recorded inefficiencies in electricity production is persistent. [ABSTRACT FROM AUTHOR]

This study aims to analyze two important features of crude oil price data, namely, persistence and parameter instability. We apply an autoregressive fractionally integrated moving average model in which crude oil price persistence measured through the fractional integration parameter, conditional innovation variance and persistence change through Markov-switching dynamics. Model estimation is conducted using Gibbs sampling combined with data augmentation. Applied to monthly West Texas Intermediate crude oil price data from September 1859 to December 2017, we find evidence of four regimes. The main effect of regime switching is in the conditional variance and persistence of the innovations, but there is the possibility that regime switching also affects the fractional integration parameter. Across regimes crude oil price is very persistent with the order of integration estimated close to or slightly higher than one. Finally, discarding parameter instability leads to overestimation of the degree of persistence in the price of crude oil. It also results in inferior density forecasts. [ABSTRACT FROM AUTHOR]

In this paper, we consider a long-term unit commitment problem with thermal and renewable energy sources, where system operating costs have to be minimized. The problem is enhanced by adding pumped storages, where water is stored in reservoirs, being turbinated or pumped up if it is beneficial in terms of reducing the operating costs. We present a tight mixed-integer linear programming model with a redefinition of decision variables and a reformulation of constraints, e.g., for the spinning reserve. The model serves as a basis for a new decomposition method, where fix-and-optimize schemes are used. In particular, a time-oriented, a unit-oriented, and a generic fix-and-optimize procedure are presented. A computational performance analysis shows that the mixed-integer linear model is efficient in supporting the solution process for small- and medium-scale instances. Furthermore, the fix-and-optimize procedures are able to tackle even large-scale instances. Particularly, problem instances with real-world energy demands, power plant-specific characteristics, and a one-year planning horizon with hourly time steps are solved to near-optimality in reasonable time. [ABSTRACT FROM AUTHOR]

We analyze the relative price responsiveness of unconventional versus conventional natural gas extraction. We separately analyze three key stages of gas production: drilling wells, completing wells, and producing natural gas from the completed wells. The most important margin is drilling investment, and neither production from existing wells nor completion times respond strongly to prices. We estimate a gas drilling response of 0.9% per 1% gas price shock, for both conventional and unconventional sources. Nonetheless, because unconventional wells produce about three times more gas per well than conventional ones, the supply response is much larger for unconventional supply. Accounting for changes to the level and composition of drilling activity, the gas supply is about three times more responsive during the "shale era" of 2010–15 compared to 2000–2005. We illustrate how the distinctions between the stages of production (drilling, completion, and production) are key to understanding price responsiveness. [ABSTRACT FROM AUTHOR]

This paper explores whether climate policy justifies developing more shale gas and addresses the question of a potential arbitrage between shale gas development and the transition to clean energy. We construct a Hotelling-like model where electricity may be produced by three perfectly substitutable sources: an abundant dirty resource (coal), a non-renewable less polluting resource (shale gas), and an abundant clean resource (solar). The resources differ by their carbon contents and their unit costs. Shale gas extraction's technology (fracking) generates local damages. Fixed costs must be paid to develop shale gas and to deploy the clean resource on a large scale. Climate policy takes the form of a carbon budget. We show that, at the optimum, a more stringent climate policy does not always go together with an increase of the quantity of shale gas extracted, and that banning shale gas extraction most often leads to bring forward the development of the clean resource, but not always. We calibrate the model for Europe in order to determine whether shale gas should be extracted and in which amount, and to evaluate the effects of a moratorium on shale gas use. [ABSTRACT FROM AUTHOR]

Copyright of Zeitschrift für Energiewirtschaft is the property of Springer Nature and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Switching to more energy-efficient appliances may lead to higher energy demand. This phenomenon is known as the rebound effect, which may lead to less power saving than expected prior to the switch. Using a combination of propensity score matching with the difference-in-differences method, we examine the change in household electricity consumption that may be caused by replacing air conditioners with more energy-efficient ones. Based on the results of our estimations, we calculate the magnitude of the rebound effect for summer and winter. We find that the rebound effect is positive in summer and winter, and the magnitude is higher in winter (7.87% versus almost 100%, respectively). The estimated rebound effect is small in summer, implying that the power-saving effect due to switching to energy-efficient air conditioners is sizable. On the other hand, no power-saving effect due to the switch was found in winter. [ABSTRACT FROM AUTHOR]

The promotion of energy-efficient appliances is necessary to reduce the energetic and environmental burden of the household sector. However, many studies have reported that a typical consumer underestimates the benefits of energy-saving investment on the purchase of household electric appliances. To analyze this energy-efficiency-gap problem, many scholars have estimated implicit discount rates that consumers use for energy-consuming durables. Although both hedonic and choice models have been used in previous studies, a comparison between the two models has not yet been made. This study uses point-of-sale data about Japanese residential air conditioners and estimates implicit discount rates with both hedonic and choice models. Both models demonstrate that a typical consumer underinvests in energy efficiency. Although choice models generally estimate a lower implicit discount rate than hedonic models, the latter models estimate the values of other product characteristics more consistently than choice models. [ABSTRACT FROM AUTHOR]

The aim of this study is to investigate the causal relationship between electricity consumption and real output at the macro level and the sectoral levels in three main economic sectors, namely the agricultural, industrial, and services sectors in Egypt during the period 1971–2013. I use Johansen cointegration approach, vector error correction model, and Toda and Yamamoto (J Econom 66:225–250, 1995) approach. Empirical findings reveal the existence of a cointegration relationship between the variables at the macro level and the sectoral levels. At the macro level, there is bidirectional causality between real output and electricity consumption. Whereas at the sectoral levels, there exists bidirectional causality between electricity consumption and real output in the services sector and unidirectional causality running from real output in the industrial sector to electricity consumption. However, there is no causal relationship between electricity consumption and real output in the agricultural sector. These results can help policymakers in setting the appropriate electricity conservation policies that enhance economic growth at the macro level and the sectoral levels to prevent any possible adverse effect that may harm economic and social development. Additionally, ensuring a higher level of electricity generation needed for achieving high and sustainable economic growth is vital, where higher electricity generation can be provided through investing in clean technologies and renewable energy resources, such as wind and solar energy. [ABSTRACT FROM AUTHOR]