Ex-vessel Pricing and IFQs: A Strategic Approach

In this paper, intraseasonal fishing is modeled as a differential game between fishermen in a total allowable catch–regulated fishery with and without individual fishing quotas (IFQs). Heterogeneous harvest values are included by incorporating time-specific harvest costs and a stock effect into fishermen’s profit functions. I also allow for strategic interaction among fishermen via ex-vessel price dynamics. The equilibrium harvest strategies of the differential games are solved numerically through the use of a genetic algorithm. I demonstrate how different harvesting sector environments lead to varying degrees of ex-vessel price increases when IFQs are implemented. The primary result shows that possible margins for competition among fishermen, beyond competition for a greater share of the total allowable catch, can still exist under IFQ management and may be substantial enough to be able to prevent sizeable rent transfers from the processing sector to the harvesting sector.individual fishing quotas, property rights, differential games, genetic algorithm

Alternative Approaches to Cost Containment in a Cap-and-Trade System

We compare several emissions reduction instruments, including quantity policies with banking and borrowing, price policies, and hybrid policies (safety valve and price collar), using a dynamic model with stochastic baseline emissions. The instruments are compared under the design goal of obtaining the same expected cumulative emissions across all options. Based on simulation analysis with the model parameterized to values relevant to proposed U.S. climate mitigation policies, we find that restrictions on banking and borrowing, including the provision of interest rates on the borrowings, can severely limit the value of the policy, depending on the regulator-chosen allowance issuance path. Although emissions taxes generally provide the lowest expected abatement costs, a cap-and-trade system combined with either a safety valve or a price collar can be designed to provide expected abatement costs near those of a tax, but with lower emissions variance than a tax. Consistently, a price collar is more cost-effective than a safety valve for a given expected cumulative emissions outcome because it encourages inexpensive abatement when abatement costs decline.cost containment, safety valve, price collar, climate change

Prices versus Quantities versus Bankable Quantities

Quantity-based regulation with banking allows regulated firms to shift obligations across time in response to periods of unexpectedly high or low marginal costs. Despite its wide prevalence in existing and proposed emission trading programs, banking has received limited attention in past welfare analyses of policy choice under uncertainty. We address this gap with a model of banking behavior that captures two key constraints: uncertainty about the future from the firm’s perspective and a limit on negative bank values (e.g., borrowing). We show conditions where banking provisions reduce price volatility and lower expected costs compared to quantity policies without banking. For plausible parameter values related to U.S. climate change policy, we find that bankable quantities produce behavior quite similar to price policies for about two decades and, during this period, improve welfare by about a $1 billion per year over fixed quantities.

Prices versus Quantities versus Bankable Quantities

Welfare comparisons of regulatory instruments under uncertainty, even in dynamic analyses, have typically focused on price versus quantity controls despite the presence of banking and borrowing provisions in existing emissions trading programs. This is true even in the presence of banking and borrowing provisions in existing emissions trading programs. Nonetheless, many have argued that such provisions can reduce price volatility and lower costs in the face of uncertainty, despite any theoretical or empirical evidence. This paper develops a model and solves for optimal banking and borrowing behavior with uncertain cost shocks that are serially correlated. We show that while banking does reduce price volatility and lowers costs, the degree of these reductions depends on the persistence of shocks. For plausible parameter values related to U.S. climate change policy, we find that bankable quantities eliminate about 20 percent of the cost difference between price and nonbankable quantities.welfare, prices, quantities, climate change

Consumer preferences for end-use specific curtailable electricity contracts on household appliances during peak load hours. ESRI WP632, July 2019

Growth in energy demand together with the expansion of variable renewables has significant implications for the future electricity system. The increased volatility from growing intermittent production requires new sources of flexibility at a much greater scale to help maintain system balance. In particular, it is necessary to encourage demand reduction during peak load periods in order to avoid high cost capital investments in accommodating future peak capacity. Curtailable electricity contracts are one incentive-based Demand Response (DR) instrument that could help increase demand flexibility in the residential sector. Specifically, end-use specific curtailable contracts work by curtailing the household load directly related to the final energy service provided, for example a washing machine. To help understand consumer preferences for these types of contracts, this paper employs a discrete choice experiment on a large representative sample of electricity consumers to elicit their preferences for end-use specific curtailable contracts on different household appliances during the peak load hours between 5pm and 8pm in the evening. Furthermore, this paper estimates the compensations required by consumers to accept curtailable contracts and conducts a welfare analysis from the consumer's standpoint to determine the welfare effects for 96 different contract scenarios. In general, there is a large potential for demand flexibility from end-use specific curtailable contracts with consumers found to prefer curtailable contracts compared to their status quo electricity contracts on average. More specifically, the results show that the type of household appliance in these contracts has the most influence on consumer's preferences. The findings also suggest that consumers prefer contracts at low event frequencies that also include advance notice and an opt out. Overall, the compensations required for such contracts are estimated to be comparatively reasonable to other contract types examined in the literature

Carbon Content of Electricity Futures in Phase II of the EU ETS

We estimate the relationship between electricity, fuel and carbon prices in Germany, France, the Netherlands, the Nord Pool market and Spain, using one-year futures for base and peak load prices for the years 2009-2012, corresponding to physical settlement during the second market phase of the EU ETS. We employ a series of estimation methods that allow for an increasing interaction between electricity and input prices on the one hand, and between electricity markets on the other. The results vary by country due to different generation portfolios. Overall, we find that (a) carbon costs are passed through fully in most countries, and perhaps even by more than 100%; (b) under some model specifications, cost pass-through is similar during peak and during base load for France, Germany and the Netherlands; and (c) the results are sensitive to the degree of cross-commodity and cross-market interaction allowed. We further find that coal prices are negatively and gas prices are positively associated with allowance prices, although the latter effect is not statistically significant in all specifications

Effects of Rights-Based Management on Processors' Supply: An Application to the Alaska Pollock Fishery

Economists have generated numerous studies analyzing how a move to rights-based fishery management from open-access management affects fish harvesters' behavior. Conversely, the impacts that such a change in management can have on fish processors has received relatively little attention. This paper presents a simple two-product processor supply model to show that switching to a rights-based managed fishery can be a source of rent generation for the processors by making their supply more responsive to output prices. Using data from the Alaska pollock fishery, a cointegration with structural break analysis is used to provide evidence of a change in the long-run relationship between processors output, product prices, and whole fish deliveries. The empirical application finds that the endogenously determined structural breaks happened near the time this fishery implemented an individual fishing quota. Furthermore, the estimation of the cointegrating vector indicates that the processors of this fishery are significantly more price responsive after the change in managemen

Efficiency and Environmental Impacts of Electricity Restructuring on Coal-fired Power Plants

We investigate the impacts of electricity market restructuring on fuel efficiency, utilization and, new to this area, cost of coal purchases among coal-fired power plants using a panel data set from 1991 to 2005. Our study focuses exclusively on coal-fired power plants and uses panel data covering several years after implementation of restructuring. The estimation compares how investor-owned (IOs) plants in states with restructuring changed their behavior relative to IOs in states without. Our analysis finds that restructuring led to: (1) a two percent improvement in fuel efficiency for IOs, (2) a ten percent decrease in unit cost of heat input, and (3) a lower capacity factor even after adjusting for cross-plant generation re-allocation due to cost reductions. Based on these estimates, back-of-the-envelope calculations find that restructuring has led to about 6.5 million dollars in annual cost savings or nearly 12 percent of operating expenses and up to a 7.6 percent emissions reduction per plant

Carbon content of electricity futures in Phase II of the EU ETS

We estimate the relationship between electricity, fuel and carbon prices in Germany, France, the Netherlands, the Nord Pool market and Spain, using one-year futures for base and peakload prices for the years 2009--2012, corresponding to physical settlement during the second market phase of the EU ETS. We employ a series of estimation methods that allow for an increasing interaction between electricity and input prices on the one hand, and between electricity markets on the other. The results vary by country due to different generation portfolios. Overall, we find that (a) carbon costs are passed through fully in most countries; (b) under some model specifications, cost pass-through is higher during peakload than during baseload for France, Germany and the Netherlands; and (c) the results are sensitive to the degree of cross-commodity and cross-market interaction allowed