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The Energy Journal
Volume 42, Number 3

Switching Energy Suppliers: It’s Not All About the Money

David Deller, Monica Giulietti, Graham Loomes, Catherine Waddams Price, Anna Moniche, and Joo Young Jeon

DOI: 10.5547/01956574.42.3.ddel
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Many consumers do not take advantage of lower energy prices available in liberalized retail markets. We provide evidence to explain why consumers may leave substantial amounts of "money on the table" in this way. We observe real decisions made by over 7,000 consumers in a collective switching auction, supplemented by their responses to a survey. We identify factors which may inhibit switching and show that expectations of high switching rates in an unregulated market may be unrealistic. Our findings have important implications for the design and regulation of energy markets, including imposition of price caps on "default" retail tariffs in 2019 in the UK and parts of Australia.

The Price Impact of Energy Vouchers

Marion Podesta, Jean-Christophe Poudou, and Michel Roland

DOI: 10.5547/01956574.42.3.mpod
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France and South Korea have implemented voucher programs to counter energy poverty. In contrast to goods that traditional voucher programs target, the market structure that dominates energy supply is the oligopoly. In this paper, we study the price impact of vouchers in this market structure. We first state conditions on demand elasticities that make the choice of vouchers consistent with the regulator's objective of eliminating energy poverty. We then model a game between energy suppliers and the regulator, where suppliers maximize profit while the regulator ensures that no consumer spends more than a given share of income on energy. From a benchmark case without vouchers, we show that vouchers reduce the energy price under simultaneous decision making or when the regulator moves first. However, the price impact of vouchers is ambiguous if firms move first. This scenario's price is above the price of the simultaneous decision scenario's price.

Writing Energy Economics Research for Impact

Michael Dowling, Helmi Hammami, Dima Tawil, and Ousayna Zreik

DOI: 10.5547/01956574.42.3.mdow
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We explore the drivers of impact for energy economics research based on an analysis of citations generated by The Energy Journal articles. The focus is on non-topic generators of impact. Our regression analysis shows that these non-topic measures can explain a substantial proportion (about 20%) of variation in future citations. We apply these findings, integrated with prior research on effective economics writing style, to recommend how energy economics articles should be written to increase their impact. These recommendations center particularly around the importance of initial article information provided to the reader and article structure.

Do Foreign Gifts Buy Corporate Political Action? Evidence from the Saudi Crude Discount Program

Jennifer R. Peck

DOI: 10.5547/01956574.42.3.jpec
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Between 1991 and 2003, Saudi Aramco sold crude to U.S. refineries at a substantial discount, with a total cost of approximately 8.5 billion dollars. This paper assesses the incidence of these discount rents in the U.S. market and yields the first empirical evidence for the use of oil as a tool of political leverage through transfers to American firms. Using panel variation in discount receipts, I find that rents were captured by refiners as profits. Discounts were also associated with increases in refiners� political donations and strategic reallocations of these contributions.

All the DUCs in a Row: Natural Gas Production in U.S.

Douglas Mugabe, Levan Elbakidze, and Tim Carr

DOI: 10.5547/01956574.42.3.dmug
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Using data from seven shale gas regions in the United States, we examine natural gas production in terms of drilling rig activity and well completion rates. Our objective is to examine the determinants of well completion decisions in the U.S. natural gas production. We observe that in recent years, the explanatory power of drilling rig count has declined. On the other hand, the number of producing wells remains a significant factor for explaining the variation in gas production. We find that an increase in the number of drilled but uncompleted wells (DUCs) plays a significant role in natural gas supply. The number of DUCs depends on drilling rig activity and futures prices of oil and natural gas. Also, our results indicate that well completion decisions and the duration of DUC status depend on oil and gas prices, pipeline capacity, producing well type and well depth.

The Impact of Energy Production on Farmland Markets: Evidence from New York’s 2008 Hydraulic Fracturing Moratorium

Jennifer Ifft and Ao Yu

DOI: 10.5547/01956574.42.3.jiff
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Future conventional and renewable energy production will predominantly occur on farmland, resulting in economic gains as well as potential negative externalities for farmland owners and rural communities. However there is limited research on the economic impact of energy production that takes place on farmland. This study uses the discrete change in expectations caused by the 2008 New York State moratorium on hydraulic fracturing to investigate the net impact of shale gas development on farmland values. We use a difference-in-differences empirical design with a hedonic pricing model. We find that the moratorium led to net economic losses for rural landowners in New York's Southern tier, as reflected in farmland values declining approximately $1,400/acre.

Demand Response: Smart Market Designs for Smart Consumers

Nicolas Astier and Thomas-Olivier Léautier

DOI: 10.5547/01956574.42.3.nast
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We study Peak-Time-Rebates (PTR) contracts in day-ahead electricity markets. Such contracts reward customers for reducing their consumption when wholesale prices are high. We start by pointing out that these market designs create arbitrage opportunities which, under asymmetric information, incentivize strategic consumers to inflate their baseline. We then show that an incentive compatible PTR design is equivalent to a variable Critical-Peak-Pricing design (vCPP), in which customers have to purchase their peak consumption at the spot price. Under asymmetric information, a relevant question is thus to design vCPP contracts optimally in order to achieve high enrollment rates under voluntary opt-in. This problem has different solutions depending on whether policy-makers choose to maintain existing cross-subsidies or not.

The Rebound Effect in Energy-Intensive Industries: A Factor Demand Model with Asymmetric Price Response

Anna Dahlqvist, Tommy Lundgren, and Per-Olov Marklund

DOI: 10.5547/01956574.42.3.adah
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The purpose of this paper is to estimate industry-specific direct rebound effects and to relate these effects to industry energy efficiency programs. The rebound effect represents economic behavior that will offset energy savings from energy efficiency improvements. The paper focuses on four energy intense sectors in Sweden; pulp and paper, iron and steel, chemical, and mining, during 2001-2012. We apply a factor demand model that allows for asymmetric energy price responses, i.e. that firms respond differently to increasing and decreasing energy prices. The results show considerable rebound effects. For electricity and non-fossil fuels, efficiency improvements could even 'backfire'. To mitigate this effect, policies, such as voluntary energy efficiency programs, should be combined with an increase in energy taxes if the ambition is to reduce overall energy use.

The Impact of a Revenue-Neutral Carbon Tax on GDP Dynamics: The Case of British Columbia

Jean-Thomas Bernard and Maral Kichian

DOI: 10.5547/01956574.42.3.jber
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We study the impact over time of revenue-neutral-designed carbon taxes on GDP in the Canadian province of British Columbia (B.C.). The tax is broad-based, and all rate hikes and their timings were pre-announced. Our time series approach accounts for these pre-announcement effects, as well as for the possible saliency of the tax. Estimated impulse response functions and statistical comparisons of GDP dynamics in the presence and (counterfactual) absence of carbon taxes lead to the same result. Overall, revenue-neutral carbon taxation has no significant negative impacts on GDP. Our setup also allows us to examine the extent of the carbon tax pass-through into energy prices. We find that pass-through is complete. We conclude that implementing revenue-neutral carbon taxation contributes to lowering harmful greenhouse gases into the atmosphere without hurting the economy.

Are Carbon Prices Redundant in the 2030 EU Climate and Energy Policy Package?

Finn Roar Aune and Rolf Golombek

DOI: 10.5547/01956574.42.3.faun
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In 2018, an agreement between the key EU institutions-the Commission, the European Parliament, and the European Council-was reached after a long-lasting discourse over the 2030 EU climate and energy policy package. This paper offers a comprehensive assessment of the EU package, with its three main targets: lower greenhouse gas emissions, higher renewable share in final energy consumption, and improved energy efficiency. We find that the renewable and energy efficiency targets have been set so high that the derived emissions reduction (50 percent) exceeds the EU climate target (40 percent). Hence, there is no need for an EU climate policy, for example, to use carbon prices to reach the EU climate goals. It is, however, not cost-efficient to achieve the climate target by imposing the three EU targets. We demonstrate that a cost-efficient policy that obtains a 50 percent GHG emissions reduction would increase annual welfare (relative to the Reference scenario) by an amount corresponding to 0.6 percent of GDP in Europe.

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