presentation empirical methods final

8/6/2019 Presentation Empirical Methods Final

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Paper Review:

Prices, technology development and therebound effect (Birol and Keppler, 2001)Empirical Methods for Energy EconomicsGroup 5: Maria Kaninia and Ratri Sryantoro


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05/29/11 2Departement/Institut/Gruppe

Agenda

Introduction: goals and definitions

Classical Approach Drivers of efficiency improvements Rebound Effect: energy efficiency and GDP

Modified Approach Structural shifts and imperfect markets

Markets and governments

Final Remarks


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Agenda





Final Remarks


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05/29/11 4Center for Energy Policy and Economics

GoalsGoals of the paper

1.Compare two existing options to influence energy efficiency improvement:

A price-based mechanism to raise energy prices

A command and control regulation to induce innovation in energy and

productivity

2.Explore the drivers, size and effects of the rebound effects , relationships with energyintensity and energy efficiency.

3.Explore macro effects on rebound effects of energy efficiency improvements under static and dynamic frameworks

4.Explore possible mix of policy options to reduce energy consumption


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05/29/11 5Center for Energy Policy and Economics

Definitions

Consumer preferences

Economy structure

differences

State of technology

Geography

Climate

Intensity_EUK Efficiency_EUK Intensity_EUK Pearson Correlation

1 .878

Efficiency_EUK Pearson Correlation .878 1

An Example: Energy Intensity & Efficiency EUK (1995 2005)

Data of growth in energy intensity & efficiency of 21 EU countries

from 1995 - 2005

Intensity & Efficiency not perfectly correlatedSource: CPB Netherlands Bureau for Economic Policy Analytics, Energy Intensity AcrossSectors and Countries, Empirical Evidence 1980 - 2005

Other Unaccounted Factors


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Agenda





Final Remarks


7/3805/29/11 7Center for Energy Policy and Economics

Drivers of energy efficiency improvements

Classical Method: Three Approaches

Objective

Improve energy efficiency

Technological Drivers

How to influence adoption of more

energy efficient technologies?

Non-technological drivers

Customer preferences, economy

structure, relative prices

Existing Technologies New Technologies Combination of Technologies

Target Influence: Three Approaches

Policy tools targeted at influencing factors (e.g. relative prices, education base)



Approach 1: Influence Existing TechnologiesAssessment Price Approach Control Approach

Theory on Influencing Factors Relative price of energy to other factorsHigh energy prices: energy savingtechnologies , share of K and LLow energy prices: energy savingtechnologies , share of K and L

Sufficient level of supportinfrastructureSufficient size of resources





Sufficient level of supportinfrastructureSufficient size of resourcesPolicy Tools Price-based mechanism

(Taxes, subsidies, trading schemes)Control and constraint mechanism







Critique (+) Economically efficient(+) Benefit in public goods(-) Lower growth(-) Difficult to identify the right tax rate

(+) Ecologically efficient(-) Economically inefficient(-) High administrative costs(-) Dependent on regulator foresight(not price signal)

TC: 1512.5 TC: 3200







Critique (+) Economically efficient(+) Benefit in public goods(-) Lower growth(-) Ecologically inefficient(-) Difficult to identify the right tax rate

(+) Ecologically efficient(-) Economically inefficient(-) High administrative costs(-) Dependent on regulator foresight(not price signal)

Empirical questions Price Effects: reversible vs. ratchet effectOther dynamic effects: marketing, proof of EOS, learning

TC: 1512.5 TC: 3200



Approach 2: Influence New Technologies

Assessment Approach

Theory on Influencing Factors New technologies increases economys production capabilities

Determinants of rate of adoption & turnover Knowledge & level of skilled labour Experience with similar / ancillary technologies

Effort from private and governmentAppropriate institutional support




Assessment Approach


Determinants of rate of adoption & turnover Knowledge & level of skilled labour Experience with similar / ancillary technologies


Policy Tools Public resources spend R&D Improvements in Public Goods




Assessment Approach


Determinants of new technologies rate of adoption & turnover Knowledge & level of skilled labour Experience with similar / ancillary technologies


Policy Tools Public resources spend R&D Improvements in Public GoodsCritique Effectiveness: dependent on supporting structures

Rate & turnover: immeasurable New technologies: coupled with efforts to increase productivity (no autonomoustechnical progress)



Approach 3: Influence through Both Technologies

Assessment Approach

Theory on Influencing Factors Induced technological changeStochastic relationship between technology and resources for researchBenefit maximization: most beneficial resource allocation

Price Influence

Price of energy

Static Effect

Recombination of K & L

Dynamic Effect

Re-direction of R&D

towards new technologies



Approach 3: Influence through Both Technologies

Assessment Approach

Theory on Influencing Factors Induced technological changeStochastic relationship between technology and resources for researchBenefit maximization: most beneficial resource allocationPolicy Tools Price based mechanism and R&D spend

Price Influence

Price of energy

Static Effect

Recombination of K & L

Dynamic Effect

Re-direction of R&D

towards new technologies


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18/3805/29/11 18Departement/Institut/Gruppe

Agenda





Final Remarks



Rebound Effect: Energy & GDP

Understanding the Drivers

Research Question :Do the technologyimprovements lead to

decrease energy intensity?

Check for Rebound Effect

Research Question :What happens to share of

energy in production if marginal productivity

(efficiency) increases?

Assess Rebound Effect

Research Question:What factors affect the size

of rebound effect?What are the dynamics of the

Rebound effect?

PotentialSavings

Direct & IndirectRebound Effects



Understanding Drivers of Rebound Effects



How does Rebound Effect occur?

Contributing Factors toRebound Effects

ReboundEffect

Energy

Other Inputs

I0 unit isoquantbefore energyefficiency increase= MPE/MPK

Relative factor share = E/K

Relative price per unit = PE/PK

E0

I0

I1 unit isoquantafter energyefficiency increase

Relative factor share

Relative price

per unit

E1

I1

E1>E0I1



Size, Dynamics and Effects of Rebound Effects

1.Elasticity of substitution

2.Elasticity of demand (of the cheaper good)

Determining Factors

Higher elasticities

Easier to substitute

Higher energy factor share

Higher rebound effect

Dynamics

1.Intensity decrease lessthan potential savings

2.Difficult to quantify

3.Typical figures*

Households [0 0.5]

Automobiles [0.1 0.3]

1.

2.

Size of Rebound Effects

* Source: Energy Efficiency and the Rebound Effect: Does Increasing Efficiency Decrease Demand? (Gottro, 2001)


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Agenda





Final Remarks


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Without proper manipulation of the relative price of energy (market-based policy), technical improvements do not directly translate into a decrease of energyintensity.Reason:

self-induced rebound effect

From the textbook economic story

Assumptions valid for the basic

story: [A1] Perfect competition, rational profit-maximising agents

[A2] Absence of structural shifts

realisticdescription


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[A1] Imperfect markets, irrational agents

Efficiency gap (paradox) between actual and optimal energy use:

Lack of information

Inertia(transaction cost, decision-making cost)

End-consumer: sub-optimal behaviour budget theory

Principal-agent problem Asymmetries in incentives

Because of the factors above, relative price changes are less effective asa policy instrument.

Government intervention required.

effects of market

failure pronounced for

residential users (vs.

industrial sector)

residential sector

insensitive to price

signals


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[A1] Example: Principal-Agent problem

decision-maker bears the cost of the

decision


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Relative prices: dominant role for energy intensity

Indicative evidence #1: oil Oil crisis of 1973: caused abrupt change

in relative prices Short term: disruption Long term: shock absorbed, oil

intensity reduced, convergencesWhat does the graph not show? The impact of structural shifts.

aggregate

c o n v e r

g e n c e


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Indicative evidence #2: electricity sector

electricityprice

electricity intensity

= consumption(kWh) / GDP

cross-sectional

data OECD

(typical curve)

Important for further policy analysis: Depending on the energy commodity (possibilities of

substitution), price changes might be effective tools to govern intensity.


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[A2] Structural shocks

Non-continuous changes External shock (e.g. oil crisis) Major technological innovations Major changes in government policy (e.g. performance standards in the

transport sector)

Normal adjustment procedure of adapting to improvedefficiency inhibited

No factor substitution possible in the short-term in production processes. Market mechanisms do not function in the ordinary way under extra-ordinary

conditions. Catch-up phase required


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Reversibility = assumption in the textbook static framework

Real world: ratchet effect for efficiency improvement in addition to: constant incremental improvement over time learning effect locked achieved improvement because of adjustment costs

time~efficiency

(continuous technical

improvement)

1/intensity rebound

effect (%) =

(AB)/(AC)

improbable!


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No substitution

If it is not possible to substitute energy with other factors of production, then: delta_energy intensity ~ delta_technical efficiency

example :

Leontieff production function (fixed ration of input factors)

(exemplifies the transition situation in the

short run)


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Agenda





Final Remarks


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Government objective (political): lower absolute consumptionof energy Technological efficiency improvements not enough Critical tool : manipulation of relative prices

exception

primary energy with nonegative side-effects (e.g.

nuclear , renewables)

Factors for market failure :

Subsidies

High transaction costs

Incentive failures

government role


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Suggested policy mix (to achieve lower absolute energy consumption)Mix of policies[1] market instruments (p)condition: competitive marketsmust be enabled

price transparency adapt to structural shifts

rapid diffusion of technicalinnovation

[2] policies to drive innovation in areas where private initiative isnot enough

factor

produc

tivity

factor

sub

stitutio

output

growth

required to manage the complex

relation between End goal

off-set rebound effect

promote technologicalimprovement


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Conclusion

Since 2000 (paper date), policies (e.g. EUEmissions Trading S ystem ) have been enacted to incorporate thecarbon price into the electricity price.

Data required to see whether the carbon market hasactually driven environmental innovation.

If yes, it remains to be seen whether this carbon-drivenefficiency improvement has translated into an decrease of energy intensity.

To date method of quantifying magnitude of rebound effectis still debated


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Thank you for your attention

Questions?

presentation empirical methods final

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