Identification of Options and Policy Instruments for the Internalisation of External Costs of Electricity Generation. Dissemination of External Costs of Electricity Supply Making Electricity External Costs Known to Policy-Makers MAXIMA

In the present paper, after reviewing the results of the ExternE project and its follow-up stages in the estimation of the external costs of electricity production, we look at the policy instruments for the internalisation of such costs. Emphasis is given to subsidies, such as feed-in tariffs, competitive bidding processes and tradable green certificates to stimulate the use of renewables in the production of electricity. When policy-makers are asked to choose the instrument(s) to internalise the externalities in the electricity production, they have to find a solution that gives the best outcome in terms of efficiency, cost minimisation, impact on the job market, security of energy supply, equity of the instrument, technological innovation, certainty of the level of the internalisation, and feasibility. The choice of the instrument will require some trade-offs among these criteria. Conjoint choice analysis can help in investigating how stakeholders and policy makers trade off the criteria when choosing a policy for the internalisation of the externalities. In this paper we present the first results of a questionnaire that employs conjoint choice questions to find out how policy makers and stakeholders of the electricity market trade off some socio-economic aspects in the selection of the policy instruments for the internalisation of the externalities. The results of this first set of interviews will be useful for further research.Policy instruments, ExternE, External costs, Electricity, Conjoint choice analysis

Environmental Externalities of Geological Carbon Sequestration Effects on Energy Scenarios

Geological carbon sequestration seems one of the promising options to address, in the near term, the global problem of climate change, since carbon sequestration technologies are in principle available today and their costs are expected to be affordable. Whereas extensive technological and economic feasibility studies rightly point out the large potential of this ‘clean fossil fuel’ option, relatively little attention has been paid so far to the detrimental environmental externalities that the sequestering of CO2 underground could entail. This paper assesses what the relevance might be of including these external effects in long-term energy planning and scenario analyses. Our main conclusion is that, while these effects are generally likely to be relatively small, carbon sequestration externalities do matter and influence the nature of future world energy supply and consumption. More importantly, since geological carbon storage (depending on the method employed) may in some cases have substantial external impacts, in terms of both environmental damage and health risks, it is recommended that extensive studies are performed to quantify these effects. This article addresses three main questions: (i) What may energy supply look like if one accounts for large-scale CO2 sequestration in the construction of long-term energy and climate change scenarios; (ii) Suppose one hypothesizes a quantification of the external environmental costs of CO2 sequestration, how do then these supposed costs affect the evolution of the energy system during the 21st century; (iii) Does it matter for these scenarios whether carbon sequestration damage costs are charged directly to consumers or, instead, to electricity producers?Geological carbon storage, External costs, Energy scenarios

Agglomerative Magnets and Informal Regulatory Networks: Electricity Market Design Convergence in the USA and Continental Europe

The absence of one broadly accepted design template for liberalised electricity markets induces regulatory competition and institutional diversity. Focussing on continental Europe and the USA, this analysis explores how agents and structures accelerate or impede the move to one standard market design in the electricity sector. It reveals that market design convergence in Europe is driven by the 'Florence Consensus,' a tripartite coalition between the European Commission fostering European integration and the internal market, informal regulatory networks between grid operators, standardisation authorities and regulators, who have been coordinating their actions in the 'Florence Forum,' and epistemic communities exemplified in the Florence School of Regulation. In contrast, the United States' Federal Energy Regulatory Commission lacks support among politicians, many states' public utility commissions, the neo-liberal intelligentsia and even industrial lobbying groups to effectively push for a standardised market design. However, design convergence in the USA may be induced by the gradual expansion of multi-state markets operated by regional transmission organisations.Electricity, Deregulation, Regulatory Competition, Policy Diffusion

The Opening of the European Electricity Market and Environmental Policy: Does the Degree of Competition Matter?

This paper studies the relevance of strategic trade effects in the environmental policy for the European electricity sector. The production, investment and trade of electricity are modelled for four European countries. Three market regimes are distinguished: perfect competition, price regulation and Cournot competition. The model is used to examine the effect of the degree of competition on the state of the environment and to study the strategic trade effects of unilateral environmental policies.Electricity, Trade and the Environment

Multi-Product Crops for Agricultural and Energy Production – an AGE Analysis for Poland

By-products from agriculture and forestry can contribute to production of clean and cheap (bio)electricity. To assess the role of such multi-product crops in the response to climate policies, we present an applied general equilibrium model with special attention to biomass and multi-product crops for Poland. The potential to boost production of bioelectricity through the use of multi-product crops turns out to be limited to only 2-3% of total electricity production. Further expansion of the bioelectricity sector will have to be based on biomass crops explicitly grown for energy purposes. The competition between agriculture and biomass for scarce land remains limited, given the availability of relatively poor land types and substitution possibilities. The importance of indirect effects illustrates that the AGE framework is appropriate.Applied general equilibrium (AGE), Biomass, Energy policy, Renewable energy

Management of local citizen energy communities and bilateral contracting in multi-agent electricity markets

ABSTRACT: Over the last few decades, the electricity sector has experienced several changes, resulting in different electricity markets (EMs) models and paradigms. In particular, liberalization has led to the establishment of a wholesale market for electricity generation and a retail market for electricity retailing. In competitive EMs, customers can do the following: freely choose their electricity suppliers; invest in variable renewable energy such as solar photovoltaic; become prosumers; or form local alliances such as Citizen Energy Communities (CECs). Trading of electricity can be done in spot and derivatives markets, or by bilateral contracts. This article focuses on CECs. Specifically, it presents how agent-based local consumers can form alliances as CECs, manage their resources, and trade on EMs. It also presents a review of how agent-based systems can model and support the formation and interaction of alliances in the electricity sector. The CEC can trade electricity directly with sellers through private bilateral agreements. During the negotiation of private bilateral contracts, the CEC receives the prices and volumes of their members and according to its negotiation strategy, tries to satisfy the electricity demands of all members and reduce their costs for electricity.info:eu-repo/semantics/publishedVersio

Transport Energy Security. The Unseen Risk?

The decline in significance given to energy security in recent years can be associated with increasing trust in the self-balancing security of a global-trading economy. After the events of the first years of the 21st century, that framework now looks more problematic, at least for oil supplies. The underlying level of risk that characterised the oil market of the late 20th century has changed, exacerbated by the increasing inelasticity of demand for oil-based products in the transport sector of the world’s economies, which in its turn reflects the strategic dominance of transport within economies. The prudent course for the international community is to reduce the underlying causes of possible geopolitical constraints by making them more manageable through normal channels. One such constraint that is within every nation’s capability (and self-interest) to reduce is the upward drift in the price inelasticity of domestic oil consumption. This could involve increasing the ability to divert oil used within the domestic economy to transport. Yet for many industrial economies, this option has largely been exhausted and a more radical approach of opening up new energy vectors to supply the transport sector may be needed. Taking preventative action after a security event is generally more straightforward than taking precautionary action to ensure that it never happens. The latter course may only be successful through a coincidence with other interests. The current environment agenda is such a coincident interest with transport fuel security.Transport energy security, Risk

Transforming the energy system - the evolution of the German technological system for solar cells

To improve our understanding of processes involved in the formation and growth of new technological systems in the energy sector and to identify the associated key challenges for policy makers managing the transformation process, we examine the development of the German technological system for solar cells over the past twenty-five years. We use a 'technological system' approach in which we will trace the evolution of actors, networks and institutions that have a bearing on the generation and diffusion of solar cells. An initial preparatory stage lasted until about 1989 and was mainly characterised by knowledge build up induced by a Federal RDD programme. This was followed by a second stage characterised by political struggle over the regulatory framework and subsequently the beginning of a virtuous circle for solar cells. In the concluding discussion, we emphasise four key features of the evolution of the technological system: (1) the role of a coalition of system builders which successfully influenced the regulatory framework so that markets could be formed: (2) the considerable length of the learning period and the large number of actors which need to learn; (3) the importance of policies which form early markets (not only early niche markets, but beyond those) as only markets may induce firms to enter and learn, and (4) the need to run market formation policies simultaneous to policies which maintain technological variety.new technology, growth and formation, solar cells, Germany

Sustainability and Substitution of Exhaustible Natural Resources. How resource prices affect long-term R&D investments

Traditional resource economics has been criticised for assuming too high elasticities of substitution, not observing material balance principles and relying too much on planner solutions to obtain long-term growth. By analysing a multi-sector R&D-based endogenous growth model with exhaustible natural resources, labour, knowledge, and physical capital as inputs, the present paper addresses this critique. We study transitional dynamics and the long-term growth path and identify conditions under which firms keep spending on research and development. We demonstrate that long-run growth can be sustained under free market conditions even when elasticities of substitution between capital and resources are low and the supply of physical capital is limited, which seems to be crucial for today’s sustainability debate.Growth, Non-renewable resources, Substitution, Investment incentives, Endogenous technological change, Sustainability