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[en] We evaluate the impact of technology adoption subsidies on investment behavior in an individual choice experiment. In a laboratory setting professional managers are confronted with an intertemporal decision problem in which they have to decide whether or not to search for, and possibly adopt, a new technology. Technologies differ in the per-period benefits they yield, and their purchase price increases with the per-period benefits provided. We introduce a subsidy on the more expensive technologies (that also yield larger per-period benefits), and find that the subsidy scheme induces agents to search for and adopt these more expensive technologies even though the subsidy itself is too small to render these technologies profitable. We speculate that the result is driven by the positive connotation (affect) that the concept 'subsidy' invokes. (author)
[en] This paper deals with the problem of using taxes (or subsidies) to correct the inefficient resource allocation under monopoly. In this paper, the question raised is 'what would be the optimal tax on resource extraction under monopoly?' Ultimately, it is shown that taxes may be devised to generate price and extraction paths under monopoly that are identical to those under the competitive equilibrium. Tax policy can thus be used as an instrument for changing the distortionary resource allocation generated by the monopolist
[en] Highlights: • We analyzed the natural gas subsidy in China during 2007–2015. • We first introduced the LMDI method to analyze energy subsidy scale. • We decomposed the influence factor of changes in natural gas subsidy scale. - Abstract: This paper applied the price-gap approach to estimate natural gas subsidy in China during 2007–2015 and employed the LMDI method to analyze the influencing factors of the changes in the subsidy scale. The results showed that the Chinese government raised the domestic gas price in contrast to the slump in global gas price in 2009, which accelerated the huge decrease in the natural gas subsidy scale. But the stagnation in price adjustment immediately led to a rebound in natural gas subsidy during 2010–2012. However, the level of natural gas subsidy has declined substantially in the industrial and commercial sectors since the natural gas pricing mechanism reform began in 2013. But the level of residential natural gas subsidy still remained high because the city gate pricing mechanism was not extended to this sector. The pricing mechanism was the most important decomposition factor of changes in the level of natural gas subsidy. The contribution rates of competitive gas price, pricing mechanism, consumption structure and natural gas consumption on decrease in natural gas subsidy scale were 11.08%, 101.21%, - 3.15% and - 9.14% respectively during 2013–2015. A reasonable and well-implemented pricing mechanism can prevent a rebound in natural gas subsidy. Therefore, the government should seize the current opportunity of sufficient natural gas supply and relatively low gas price to deepen and advance the natural gas pricing mechanism reform.
[en] This paper analyses how governments in the EU(15) countries have succeeded in stimulating investments in wind turbines between 1985 and 2005. I use four different evaluation criteria (Tobin's Q, Euler equation estimation, investment accelerator model, and the effective marginal tax rate) to describe the observed investment patterns. After a period of rapid growth in capital stock (1985-2000), a period of modest growth (2001-2005) can be observed even though the economic attractiveness of investing increases modestly. This pattern cannot be explained by the evaluation criteria unless we accept economic attractiveness is a necessary condition and not a necessary and sufficient condition. When analysing which policy has worked best, the policies of Germany, Denmark and Spain stand out. Their early and consistent support has been based on feed-in tariffs combined with subsidies
[en] This paper examines the incentives that generation firms have in restructured electricity markets for supporting long-term transmission investments. In particular, we study whether generation firms, which arguably play a dominant role in the restructured electricity markets, have the incentives to fund or support incremental social-welfare-improving transmission investments. We examine this question in a two-node network and explore how such incentives are affected by the ownership of financial transmission rights (FTRs) by generation firms. In the analyzed two-node network, we show both (1) that the net exporter generation firm has the correct incentives to increase the transmission capacity incrementally up to a certain level and (2) that, although a policy that allocates FTRs to the net exporter generation firm can be desirable from a social point of view, such a policy would dilute the net-importer-generation-firm's incentives to support transmission expansion. Moreover, if all FTRs were allocated or auctioned off to the net exporter generation firm, then it is possible to increase both consumer surplus and social welfare while keeping the net exporter generation firm revenue neutral. (author)
[en] We analyse optimal environmental policies in a market that is vertically differentiated in terms of the energy efficiency of products. Considering energy taxes, subsidies to firms for investment in more eco-friendly products, and product standards, we are particularly interested in how distributional goals in addition to environmental goals shape the choice of policy instruments. We find that an industry-friendly government levies an energy tax to supplement a lax product standard, but shies away from subsidies to firms. By contrast, a consumer-friendly government relies heavily on a strict product standard and additionally implements a moderate subsidy to firms, but avoids energy taxes. - Highlights: ► We analyse how distributional goals shape environmental policy. ► Firms invest in the energy efficiency of their products and compete in prices. ► An industry-friendly government implements an energy tax and a lax product standard. ► A consumer-friendly government chooses a subsidy to firms instead of an energy tax. ► A consumer-friendly government implements a strict energy efficiency standard
[en] Highlights: • Estimate minimum-variance and quantile hedge ratios for crude oil, heating oil, and natural gas. • Hedge ratios are estimated using daily to monthly data and maximal-overlap discrete wavelet transform to the daily return. • Price discovery seems to play an important role in the magnitude of the hedge ratio. • Quantile hedge ratios are similar to the MV hedge ratios for the short hedging horizon but not so much for the longer one. • Hedging effectiveness is found to increase with hedging horizon. - Abstract: In this study, we estimate the minimum variance (MV) and quantile hedge ratios for three energy-related commodities: crude oil, heating oil and natural gas. For crude oil and heating oil, we find the quantile hedge ratios to have inverted U shape using daily data. However, for natural gas, the quantile hedge ratios are mostly below the MV hedge ratio which is significantly lower compared to naïve hedge ratio. Such behavior of hedge ratios for daily data is consistent with our empirical results which suggest that price discovery mostly takes place in the futures market for natural gas. We also estimate the hedge ratios for weekly and four-weekly hedging horizons using non-overlapping data. For the longer horizon, we use wavelet analysis to decompose the return time series into different components with respect to different time-scales. We find that, eventually for longer hedging horizons, the quantile hedge ratios converges to MV hedge ratio. The crude oil takes the shortest time-scale to achieve the convergence and the natural gas takes the longest time-scale. Finally, consistent with other studies, we find the hedging effectiveness to increase with hedging horizon.
[en] Highlights: • Oil market and welfare effects of phasing out oil consumption subsidies in the transport sector • Oil subsidy removal may, via lower oil prices in the global oil market, stimulate oil consumption in other regions • OPEC-Core producers have market power in the intertemporal, numerical model of the international oil market • OPEC consumers are worse off by subsidy removal, but overall OPEC welfare increases due to higher profits from oil production - Abstract: This paper studies the oil market effects of phasing out oil consumption subsidies in the transport sector. Welfare effects in different countries are also examined. The paper further investigates potential feedback mechanisms of oil subsidy removal via lower oil prices in the global oil market, which may stimulate oil consumption in other regions. An intertemporal numerical model of the international oil market is applied, where OPEC-Core producers have market power. The major subsidisers of oil are OPEC countries, and the effects of subsidy removal here are quite pronounced. Consumption of oil in the transport sector of OPEC countries declines significantly. As a result, the global oil price falls slightly, and other regions increase their oil consumption to some degree. Although OPEC consumers are worse off by the subsidy removal, total welfare in OPEC increases due to higher profits from oil production.
[en] Highlights: • Theoretical model supported by empirical evidence regarding OPEC members' incentives for abiding or violating quotas • A model with endogenous capacity, quota allocations, production, and punishment choices • Empirical evidence suggests OPEC is more active during low price episodes • The likelihood of producing at capacity higher in the high demand states • Small members make larger proportional deviations compared to larger producers especially in bad times - Abstract: Over the last decades quota violations have become a norm for OPEC countries. However, the academic literature on OPEC focuses more on its production behavior than on analyzing the quota allocation process or characterizing quota violation patterns. This paper offers a theoretical model with empirical evidence to explain OPEC members' incentives for abiding or violating quotas. We first offer a cartel model with a quota allocation rule and an endogenous capacity choice. The model highlights the trade-off between building spare capacity to bargain for a higher legitimate quota versus risking quota violation punishment. Using the quarterly data from 1995 to 2007, we empirically support the main results and intuitions for the model. Our empirical evidence is consistent with a theoretical framing in which capacity constraints work as an enforcement mechanism in good times and OPEC's quota system disciplining its members in bad times.
[en] The objective of this paper is to develop strategies useful for raising prices of rural power in India. Such power is currently subsidized and policymakers are eager to make the transition to more efficient prices. The traditionally used measure, willingness to pay (WTP), is shown to have no useful policy implications due to the rationing of power. Using survey data from rural Andhra Pradesh, we show that the utility's cost of power exceeds the income generated by the power. This suggests a political problem - the possibility that low power prices have led to large-scale farming of unproductive land - that will be hard to resolve. Our survey also shows that subsidies are regressive with income. We use measured WTP for higher income groups to propose a discriminatory pricing regime that will raise total revenue by 20%. When combined with removing the causes of motor burnout, such as voltage fluctuations, and eliminating rostering, subsidies can be reduced substantially but probably remain too high to be resolved without political action. (Author)