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The Energy Journal
Volume 42, Number 6

Governance, Environmental Vulnerability, and PM2.5 Concentrations: International Evidence

Thai-Ha Le, Youngho Chang, and Donghyun Park

DOI: 10.5547/01956574.42.6.thle
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We extend the EKC framework to examine the role of governance quality and environmental vulnerability in PM2.5 concentrations using a global panel dataset of 128 countries between 2000 and 2014. The results show that governance and education reduce PM2.5 concentrations while environmental vulnerability increases the concentrations. Promoting good governance and education as well as reducing environmental vulnerability can thus contribute to cleaner air. We find qualitatively similar results for the sub-sample of high-income countries, but governance has relatively weaker or insignificant effects for the sub-samples of upper-middle-income and lower-middle-and-low-income countries. High-income countries have strong institutional frameworks that facilitate enforcement of environmental regulations, which are conducive for protecting air quality, whereas other countries have relatively weak institutional capacity. This suggests a need for substantial economic, technological, and financial support from the international community for strengthening the environmental institutional capacity of developing countries.

Oil price volatility is effective in predicting food price volatility. Or is it?

Ioannis Chatziantoniou, Stavros Degiannakis, George Filis, and Tim Lloyd

DOI: 10.5547/01956574.42.6.icha
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Volatility spillovers between food commodities and oil prices have been identified in the literature, yet, there has been no empirical evidence to suggest that oil price volatility improves real out-of-sample forecasts of food price volatility. In this study we provide new evidence showing that oil price volatility does not improve forecasts of agricultural price volatility. This finding is based on extensive and rigorous testing of five internationally traded agricultural commodities (soybeans, corn, sugar, rough rice and wheat) and two oil benchmarks (Brent and WTI). We employ monthly and daily oil and food price volatility data and two forecasting frameworks, namely, the HAR and MIDAS-HAR, for the period 2nd January 1990 until 31st March 2017. Results indicate that oil volatility-enhanced HAR or MIDAS-HAR models cannot systematically outperform the standard HAR model. Thus, contrary to what has been suggested by the existing literature based on in-sample analysis, we are unable to find any systematic evidence that oil price volatility improves out-of-sample forecasts of food price volatility. The results remain robust to the choice of different out-of-sample forecasting periods and three different volatility measures.

The Choice between Renewables and Non-renewables: Evidence from Electricity Generation in 29 Countries

Jeremy Nguyen, Abbas Valadkhani, and Gholamreza Hajargasht

DOI: 10.5547/01956574.42.6.jngu
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We examine how per capita income and relative fossil fuel prices influence the use of non-renewables (oil, coal and natural gas), nuclear, hydroelectric, and other renewables in electricity generation. Panel regressions are estimated using the fully modified ordinary least squares method and data across 29 countries (1985–2017). We include both developed and developing economies whose classification status is allowed to vary during the sample period depending on per capita income. Results suggest that oil prices play a dominant role in boosting the use of renewables, while gas serves as a transition fuel. For developing nations, income is a significant constraint in the use of renewables, while coal and gas prices do not significantly influence the use of hydro and nuclear. This finding supports a shift away from the exclusive use of pricing mechanisms towards set targets linked to per capita income to encourage the use of renewables in developing economies.

Buyer Beware: The Asymmetric Impact of the Strategic Petroleum Reserve on Crude Oil Prices

Reid B. Stevens and Jeffery Y. Zhang

DOI: 10.5547/01956574.42.6.rste
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Have U.S. oil market policy interventions succeeded in lowering the price of crude oil? This paper uses a structural vector autoregression model of the U.S. oil market to estimate the effect of purchases and releases by the Strategic Petroleum Reserve (SPR). Unanticipated releases from the SPR have no measurable impact on oil prices, but unanticipated purchases for the SPR raise oil prices by about 1 percent. These results are robust to identification using external instruments.

The Effect of Human Capital on CO2 Emissions: Macro Evidence from China

Yao Yao, Lin Zhang, Ruhul Salim, and Shuddhasattwa Rafiq

DOI: 10.5547/01956574.42.6.yyao
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We study the effect of human capital on CO2 emissions using the Chinese provincial panel over the period 1997–2016. Allowing for cross-sectional dependence and structural breaks, we find a negative association between human capital and CO2 emissions in the long run and attribute it to the influences from younger workers and workers with advanced human capital. In particular, our results suggest that a one-year increase in average schooling reduces CO2 emissions by 12 per cent. Using disaggregated emission dataset by energy sources and end emitters, we demonstrate this negative association is likely to manifest through technology effect and the improvement in energy efficiency. These manifestations are limited to production sector. Our finding suggests a promising avenue for abating greenhouse gases without impeding economic growth.

Quantifying the Distributional Impact of Energy Efficiency Measures

Daire McCoy and Raphaela A. Kotsch

DOI: 10.5547/01956574.42.6.dmcc
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The distributional impact of the low-carbon transition is an increasingly important topic both for academics and policymakers. Quantifying where the costs and benefits fall can provide greater insight into the equity and cost-effectiveness of government policies, and improve our understanding of household investment decisions. This paper provides new evidence on the distribution of returns from energy efficiency measures both over time and across household-type. A range of econometric techniques are applied to a database of over four million households over an eight year period to quantify heterogeneity, persistence and how these factors impact the relative cost-effectiveness of measures. Results suggest that more deprived households experience lower energy savings, the difference persists over time, and that significantly heterogeneity may be present across levels of deprivation and income deciles that can not be explained by differences in baseline consumption. Measures have been largely cost-effective but savings are much lower than previous policy evaluations using ex-ante estimates would suggest.

Economic and Environmental Consequences of Market Power in the South-East Europe Regional Electricity Market

Verena Viskovic, Yihsu Chen, Afzal S. Siddiqui, and Makoto Tanaka

DOI: 10.5547/01956574.42.6.vvis
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Market power in electricity and emission-permit markets in the South-East Europe Regional Electricity Market, which comprises both EU members subject to the EU Emissions Trading System (ETS) and non-EU members exempt from it, affects social welfare and carbon leakage. We examine its impact under three market settings: perfect competition (PC) and two leader-follower versions, in which a leader can exert market power in either the electricity market (S-T) or both the electricity and permit markets (S). Under PC, carbon leakage is equal to 11%-39% of ETS emission reduction depending on the cap stringency. Generally, in S-T, the leader's capacity withholding results in ETS emissions below and non-ETS emissions above PC levels. However, carbon leakage is lower vis-à-vis PC as the ETS emission reduction offsets the non-ETS emission increase. Finally, in S, the leader's propensity to lower the permit price increases ETS emissions and exacerbates carbon leakage compared to S-T.

Do Energy Efficient Firms Have Better Access to Finance?

Philipp-Bastian Brutscher, Pauline Ravillard, and Gregor Semieniuk

DOI: 10.5547/01956574.42.6.pbru
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Improving energy efficiency quickly is key to mitigating climate change and requires improvements implemented in firms. As these require upfront investments, good access to external finance is important. Theory suggests that information asymmetries may prevent lenders from including energy efficiency into their lending assessment, even though higher energy efficiency increases firm cost-competitiveness and its collateral value. Empirically, little is known about the impact of energy efficiency on access to external finance. For the first time, we examine empirically the effect of a firm’s higher energy efficiency on their ability to obtain loans in European Union countries by exploiting a unique firm-level dataset. We find that energy efficiency has no effect on the ability of a firm to obtain external financing compared to other indicators on the financial or operational health of the firm. The results reveal an unexploited potential for energy efficiency policy to signal when firms are energy efficient.

A Retrospective Evaluation of the GDF/Suez Merger: Effects on the Belgian Gas Hub

Elena Argentesi, Albert Banal-Estañol, and Jo Seldeslachts

DOI: 10.5547/01956574.42.6.earg
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We present an ex-post analysis of the effects of GDF’s acquisition of Suez in 2006, which created one of the world’s largest energy companies. We perform a series of econometric analyses on the market for trading at the Zeebrugge gas hub in Belgium. Removing barriers to entry and facilitating access to the hub through ownership unbundling were an important part of the objectives of the remedies imposed by the European Commission. Our analyses show a robust price decline after the merger. Additional evidence on traded volumes and number of hub participants is in line with an increased liquidity at the hub after the merger. This suggests the remedies were effective in limiting the potential anti-competitive effects of the merger. Moreover, it suggests that ownership unbundling has generated improved access to the hub. Therefore, remedies may have done more than simply mitigate the potential anti-competitive effects of the merger; they may have effectively created competition.

Exogenous Oil supply Shocks in OPEC and Non-OPEC Countries

Jochen Guentner and Johannes Henssler

DOI: 10.5547/01956574.42.6.jgun
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This paper expands Kilian’s (2008) original time series of exogenous oil supply shocks along two dimensions. First, we extend the sample period to include production shortfalls in OPEC member states during 2004:10–2019:12. Second, we also consider production shortfalls in non-OPEC countries. Our extended time series of exogenous oil supply shocks displays statistically significant correlation with alternative estimates of oil supply shocks based on vector-autoregressive models. At the same time, it requires a limited number of assumptions about the counterfactual evolution of production in the countries under consideration and escapes thus the current debate about the validity of common identifying restrictions in multivariate structural models.

Systemic Risk for Financial Institutions in the Major Petroleum-based Economies: The Role of Oil

Ahmed Khalifa, Massimiliano Caporin, Michele Costola, and Shawkat Hammoudeh

DOI: 10.5547/01956574.42.6.akha
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We examine the relationship between oil returns and systemic risk of financial institutions in major petroleum-based economies. By estimating ΔCoVaR, we observe the presence of remarkable increases in risk levels during the financial crises and achieve a better risk measurement when oil returns are included in the risk functions. Moreover, the estimated spread between the CoVaR without and with oil returns is absorbed in a time range that is longer than the duration of the oil shocks. This indicates that drops in oil prices which have a longer effect on risk and financial institutions require more time to account for their impact. Policy implications are also provided.

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