The emergence of markets in the natural gas industry

As countries have deregulated prices and lowered entry barriers in the natural gas industry, many new participants have emerged, promoting competition in the newly created markets. The increased competition has benefited everyone through more efficient pricing and greater choice among natural gas contracts. Four distinctstructural models have emerged in the industry's restructuring. The traditional model (a vertically integrated industry) has been increasingly replaced by models that decentralize the industry along horizontal and vertical lines. With increasing decentralization, regulation of the industry focuses on the pipeline transportation and distribution, the industry segments with natural monopoly characteristics. Regulation aims to protect both end users and participants in the deregulated segments from the market power of companies operating in the monopolistic segments. As a result of deregulation, two major markets emerge: the natural gas market (which facilitates the trading of natural gas as a commodity) and the transportation market (which enables market participants to trade the services needed to ship natural gas through pipelines). Competition and open entry are crucial for these two markets to function efficiently. The transportation market is affected by the market power of pipeline companies, but resale of transportation contracts brings competition to this market and facilitates the efficient allocation of contracts. Intermediaries and spot markets promote efficient pricing and minimize transaction costs. Markets have become more complex with deregulation, and trading mechanisms are needed to ensure the simultaneous clearing of natural gas and transportation markets at minimum cost to the industry. Two main trading models guide transactions: the bilateral trading model (which relies on decentralized bilateral negotiated between market participants) and the poolco model (which relies on a centralized entity to coordinate transactions). Properly applied, both models lead to the same outcome. The bilateral trading model has dominated because of its simplicity of implementation, but the poolco model has great potential once problems of sharing and processing information are addressed.Environmental Economics&Policies,Water and Industry,Economic Theory&Research,Markets and Market Access,Oil&Gas,Water and Industry,Oil Refining&Gas Industry,Markets and Market Access,Access to Markets,Oil&Gas

Electricity transmission: an overview of the current debate

Electricity transmission has emerged as critical for successfully liberalising powermarkets. This paper surveys the issues currently under discussion and provides a framework for the remaining papers in this issue. We conclude that signalling the efficient location of generation investment might require even a competitive LMP system to be complemented with deep connection charges. Although a Europe-wide LMP system is desirable, it appears politically problematic, so an integrated system of market coupling, possibly evolving by voluntary participation, should have high priority. Merchant investors may be able to increase interconnector capacity, although this is not unproblematic and raises new regulatory issues. A key issue that needs further research is how to better incentivize TSOs, especially with respect to cross-border issues

The Diversity of Design of TSOs

International audienceIt is puzzling today to explain diversity and imperfection of actual transmission monopoly designs in competitive electricity markets. We argue that transmission monopoly in competitive electricity markets has to be analysed within a Wilson (2002) modular framework. Applied to the management of electricity flows, at least three modules make the core of transmission design: 1° the short run management of network externalities; 2° the long run management of network investment; and 3° the coordination of neighboring Transmission System Operators for cross border trade. In order to tackle this diversity of designs of TSOs, we show that for each of these modules, three different basic ways of managing them are possible. Among the identified twenty seven options of organisation, we define an Ideal TSO. Second, we demonstrate that 1°monopoly design differs from this Ideal TSO and cannot handle these three modules irrespective of the “institutional” definition and allocation of property rights on transmission; while 2°definition and allocation of property rights on transmission cannot ignore the existing electrical industry and transmission network structure: they have to complement each other to be efficient. Some conclusions for regulatory issues of transmission systems operators are derived from this analysis of network monopoly organisation

Spatial interactions in agent-based modeling

Agent Based Modeling (ABM) has become a widespread approach to model complex interactions. In this chapter after briefly summarizing some features of ABM the different approaches in modeling spatial interactions are discussed. It is stressed that agents can interact either indirectly through a shared environment and/or directly with each other. In such an approach, higher-order variables such as commodity prices, population dynamics or even institutions, are not exogenously specified but instead are seen as the results of interactions. It is highlighted in the chapter that the understanding of patterns emerging from such spatial interaction between agents is a key problem as much as their description through analytical or simulation means. The chapter reviews different approaches for modeling agents' behavior, taking into account either explicit spatial (lattice based) structures or networks. Some emphasis is placed on recent ABM as applied to the description of the dynamics of the geographical distribution of economic activities, - out of equilibrium. The Eurace@Unibi Model, an agent-based macroeconomic model with spatial structure, is used to illustrate the potential of such an approach for spatial policy analysis.Comment: 26 pages, 5 figures, 105 references; a chapter prepared for the book "Complexity and Geographical Economics - Topics and Tools", P. Commendatore, S.S. Kayam and I. Kubin, Eds. (Springer, in press, 2014

Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective

Domestic-currency invoicing and hedging allow internationally active firms to reduce their exposure to exchange rate variations. This paper argues that domestic-currency invoicing and hedging with exchange rate derivatives allow a fairly straightforward management of transaction and translation risk. Broader economic risk (which takes into account the impact of the exchange rate on competitiveness) is by its very nature harder to manage, but the paper argues that natural hedging provides possibilities for doing so. A novelty of this paper is a survey of actual hedging strategies and techniques of large euro-area corporations. The paper finds that euro-area exporters make ample use of instruments to limit the adverse impact of euro appreciation.Exchange rate risk, invoicing, hedging, derivatives, Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective, Economic Paper, D�hring

Investment in Tourism Market: A Dynamic Model of Differentiated Oligopoly

We present a theoretical model in tourism economics, assuming that the market for tourism is an oligopoly with differentiated products. Destinations (i.e., countries, regions, sites or even firms) can invest in order to improve their carrying capacity that can be interpreted as the stock of physical, natural or cultural resources. Tourism flows yield current revenues, but they are usually detrimental for the cultural or natural resource stock over time. We find the solution of the dynamic model, and in particular we find the open-loop Nash equilibrium of the game among the destinations, under alternative settings, depending on whether the arrivals are exogenous or endogenous, and depending on whether the degree of differentiation among destinations is exogenous or endogenous. The model is rather general, and it can provide answers to different specific questions, like the choice between mass- vs. elite-tourism development strategies; the effect of the number of competing products upon profits; the optimal degree of product differentiation.Tourism, Differentiated games, Reservation price

Environmental tax differentiation between industries and households - implications for efficiency and employment: a multi-sector intertemporal CGE analysis for Germany

This paper investigates the economic impacts of environmental tax reforms designed to reach given emission reduction targets for the German economy. Our focus is on the efficiency and employment implications of alternative schemes for emission tax differentiation between the production sector and the household sector. We point out that strong tax discrimination in favor of the production sector may cause substantial excess costs. Differences in the emission tax base and the respective ease of emission mitigation across the production sector and the household sector are shown to play a crucial role for explaining our results. --environmental taxes,taxing production vs. taxing consumption,environmental tax reforms,computable general equilibrium

Monetary Policy in the Large Open Economy

This paper discusses recent evidence on the imperfect international substitutability of goods and assets and the implications for conduct of monetary policy in a major industrial country. A simple model is developed for analysis of the simultaneous determination of money growth and the balance of payments under pegged exchange rates. Parallels are drawn to the importance of expected depreciation in determination of floating exchange rates. An assessment is made of the extent to which a central bank can simultaneously pursue both exchange rate and money supply goals through sterilized intervention. The paper concludes with the role of saving rate differences in determining nonzero equilibrium trade balances.

Electricity transmission: an overview of the current debate

Electricity transmission has emerged as critical for successfully liberalising power markets. This paper surveys the issues currently under discussion and provides a framework for the remaining papers in this issue. We conclude that signalling the efficient location of generation investment might require even a competitive LMP system to be complemented with deep connection charges. Although a Europe-wide LMP system is desirable, it appears politically problematic, so an integrated system of market coupling, possibly evolving by voluntary participation, should have high priority. Merchant investors may be able to increase interconnector capacity, although this is not unproblematic and raises new regulatory issues. A key issue that needs further research is how to better incentivize TSOs, especially with respect to cross-border issues.Electricity, Transmission, Regulation, Prices, Merchant Investment