Regulation of telecommunication and deployment of broadband

This memorandum explores the question whether regulation in telecommunications encourages or hampers the development of new technologies. Contrary to other network industries, the telecommunications industry is more and more characterized by several, competing networks, such as cable, copper, and wireless. Regulation is, however, still needed as in several components of telecommunications sources of market power remain. The key issue in the regulation of access to a network is dealing with the possible trade-off between static efficiency and dynamic efficiency. Favourable conditions for access to the network contribute to allocative efficiency and productive efficiency, but can negatively affect incentives for investments in upgrading of existing infrastructures and developing new ones. In the Netherlands, regulation of the telecommunication industry is designed to enhance competition between alternative infrastructures without affecting the technology choice of both incumbents and entrants. In the market for unbundled access to the local loop and the market for high quality wholesale access, a trade-off exists between static efficiency and dynamic efficiency. Regulated access tariffs, which are based on average costs, seem to be a good compromise between static and dynamic efficiency. Tariffs for access to the local loop reflect actual costs of the existing copper infrastructure, giving entrants incentives to make efficient make-or-buy decisions. In addition, the threat of infrastructure competition in the local loop, as well as the service-based competition between providers using different infrastructures, i.e. copper and cable, provide incentives for the incumbent to increase efficiency. Our overall conclusion is that Dutch regulation of the telecommunication industry gives efficient incentives for technological developments such as the deployment of broadband. See also: Do market failures hamper the perspectives of broadband?

NATGAS: a model of the European natural gas market

The NATural GAS model is an integrated model of the European wholesale gas market providing long-run projections of supply, transport, storage and consumption patterns in the model region, aggregated in 5-year periods, distinguishing two seasons (winter and summer). Model results include levels of investment in the various branches, output and consumption, depletion of reserves and price levels. The NATGAS model computes long-term effects of policy measures on future gas production and gas prices in Europe. NATGAS is an equilibrium model describing behaviour of gas producers, investors in infrastructure (pipeline, LNG capacity, as well as storage), traders and consumers. NATGAS covers the main European demand regions, including the United Kingdom, Germany, the Netherlands and Italy. Moreover, it covers the main origins of supply on the European market, such as Russia, Norway, Algeria, the Netherlands, the United Kingdom and LNG. In this memorandum, we first discuss the theoretical background as well as the model specifications. Afterwards, we describe the data we used, present some results and assess validity by computing sensitivities and comparing with current developments.

Government involvement in liberalised gas markets; a welfare-economic analysis of Dutch gas-depletion policy

This report analyses the welfare effects of two major components of the Dutch gas-depletion policy: the offtake guarantee for small-fields gas and the cap on production from the Groningen field. We conclude that the benefits of offtake guarantee currently may outweigh the costs, but a further development of the gas market would reverse this picture. The cost of the offtake guarantee is that it gives operators reduced incentives to respond optimally to short-term changes in market conditions compared to a competitive market. Regarding the cap on Groningen (42.5 bcm per year), we find that this measure is inefficient when the cap is binding, i.e. restricting the production from the Groningen field. The costs of capping Groningen production follow from shifting returns to the future. The benefits of this measures consist of slightly positive effects on small-fields production and positive benefits for security of supply. Read the�background documents: CPB Memorandum 143: "Market failures and government policies in gas markets" CPB Memorandum 144: "NATGAS: a model of the European natural gas market" �

Competition on European energy markets: between policy ambitions and practical restrictions

This Document describes the background and the rationale of the European Union for pursuing liberalised energy markets, explains why this policy goal is not achieved yet, and discusses recent developments and some of the future challenges faced by political decision makers. Read also the accompanying press release .Five years after launching the process of electricity liberalisation, dominance of large utilities, lack of international transmission capacity, and national energy policies hinder the creation of competitive energy markets in Europe. Consequently, the expected downward convergence of electricity prices for EU business and EU consumers has only partly been realised. Established utility companies still have a strong position on some national electricity markets. By means of (inter)national mergers, they increase their market shares at the European level. As a consequence, the price of electricity remains at a higher level than the costs of generating the electricity. In addition, producers lack strong incentives to decrease costs and to develop new techniques of generation owing to missing fierce competitive market forces. The document shows that liberalising electricity markets increases competition provided that adequate institutional arrangements have been made. This requires, in general terms, combating dominant positions of producers by splitting up large established utility companies and implementing adequate surveillance on mergers, increasing capacities of interconnectors among the several member states, establishing spot markets at an international level, and encouraging encouraging transparency of national policies regarding production, transmission and trade.

Emissions trading and the European electricity market: Consequences of emissions trading on prices of electricity and competitiveness of basic industries

In 2001 the European Commission proposed the introduction of a European system of trading in greenhouse gases. This proposal is currently subject to fierce debates. Opponents to the proposal of the Commission do not question the efficiency effects of emissions trading in general. The economic benefits of trading in emission permits compared to other instruments for climate policy are broadly recognized. Likely distributional effects of emissions trading, however, are the origin of fierce controversies. The European Commission has proposed a method of direct allocation while others, like representatives of large industries, plead for an indirect method. In the former approach, permits are distributed directly to the group of firms that emit the gases. End-users of energy receive their permits in the latter method. Emitters and end-users of energy are the same group of firms only when use of energy coincides directly with emissions. This is valid for the burning of natural gas for instance, but not for the generation and consumption of electricity. Emissions of carbon dioxide result from electricity production when power is generated by means of coal, oil, or gas fired plants. Consumption of electricity does not generate any emissions. Consequently, the direct allocation of permits implies that power plants receive the permits while electricity users obtain them when the indirect approach is followed. The debate on the method of allocation concerns its effects on the price of electricity and the competitiveness of large users of electricity. Questions that have to be answered are: ‘will power producers raise their prices if they obtain their permits free of charge?', and ‘to which extent does a rise in electricity price affect industries such as Steel, and Aluminium?'. The Netherlands' Committee ‘Allocating emission permits" has asked the CPB to answer these questions.

A decomposition analysis of the emission of CO2

In 1997 many countries, including the Netherlands, signed the Kyoto treaty. According to this protocol, the emission of CO2 in the Netherlands in the years 2008-2012 should be on average 6% below the level of 1990. However, the emission still shows an increasing pattern. Part of the increase may be compensated by supporting projects abroad, hence the goals may still be reached if domestic emission does not increase too far. All in all, it is not sure whether the Netherlands will meet the goals of this protocol. Several factors contribute to changes in the emission of CO2. The figures of CO2 emission only show the net effect. In order to see whether technological changes decreases the emission of CO2 and whether the increase in CO2 is mainly due to economic growth, this paper uses a decomposition analysis to compute the effect of these factors. In order not to complicate the analysis too much, it was decided to focus on the emissions of CO2 and ignore the other greenhouse gasses. The emission of CO2 is the most important issue, because CO2 is the most important greenhouse gas and because the emission of the other greenhouse gasses is decreasing whereas the emission of CO2 is increasing. Policy is therefore likely to be most effective if it focuses on CO2. Further, the decomposition method can only be used to analyse the emission of producers. Emission by consumers is therefore ignored.