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Switching it up: The effect of energy price reforms in Oman
Abstract
For the most part the public debate on fossil fuel energy subsidies has been governed by two arguments. From the position of the profit-maximizing firm, the economic rationale has gravitated towards the issue of cost-competitiveness: The reduction of emissions requires a cutback of energy consumption which, when operating through the pricing mechanism, drives up the cost of inputs; increases in fossil fuel prices may therefore harm competitiveness. On the other hand, the environmental argument stresses the importance of cost transparency and externalities. However, there has also emerged a body of research which introduces a second layer to the argument of cost-competitiveness by emphazising that an increase in energy prices may not necessarily be detrimental to economic performance. This study provides novel evidence on this insight by examining the effect of a change in fossil fuel subsidies on the manufacturing industry of an oil-rich Middle Eastern economy. Using a novel firm-level micro data set on Omani manufacturing enterprises, our work shows that increases in fossil fuel energy factor prices lead to improvements in productivity as well as efficiency and notable business upgrading. The findings in this paper indicate that subsidy reforms may not only be used to achieve environmental goals but may also drive upgrading and modernization processes of firms that can, ultimately, also improve economic performance.
This study aims to analyse environmental management systems for sustainable energy price. For this purpose, a new fuzzy multi-criteria decision-making (MCDM) model is generated. First, seven different criteria are defined with supported literature. After that, these factors are weighted by considering decision making trial and evaluation laboratory (DEMATEL) methodology based on 2-tuple hesitant interval-valued Pythagorean fuzzy sets (HIVPFs). Furthermore, different pricing strategies are also ranked by using HIVPF technique for order preference by similarity to ideal solution (TOPSIS) and Vise Kriterijumska Optimizacija I Kompromisno Resenje (VIKOR). Also, a sensitivity analysis is also performed by considering six different conditions. The main contribution of this study is proposing a new mathematical model to solve a significant problem regarding energy prices. It is concluded that the results of both TOPSIS and VIKOR are quite similar. On the other side, it is also understood that the results of six different cases are almost the same. This situation explains that analysis results are reliable and coherent. The findings indicate that safety incidence and waste management are the most crucial factors for the sustainability of the energy price. In addition, skimming is the best pricing strategy for the energy industry. Within this framework, energy companies should firstly offer high prices to the market. After that, the price should be reduced when there is a decrease in the demand.
The current transgression of ecological boundaries requires a transformation to a ‘Green Economy’, with rigorous and fast reductions of pollution and resource consumption. Transformative policy reforms towards this aim can lead to economic co-benefits, but they can also be costly, at least for certain economic actors. Furthermore, they can involve trade-offs between current and future wellbeing.
Timing and sequencing of reforms is thus far from trivial. More research is needed to inform policymakers in search of the right coping strategies, in particular in economic latecomer countries with persisting poverty and a high need for short-term growth. The main research question of this article is thus: Which economic opportunities arise from orienting economic latecomer strategies towards green technologies and institutions now, versus growing first and cleaning up later?
Literature already provides a fair basis of evidence on this question. However, it is biased towards industrialised countries, and towards a subset of green incentives and technologies, such as carbon pricing and renewable energy support. The aim of this article, therefore, is threefold. First and foremost, we review and structure existing evidence and the new evidence provided by this Special Issue along the economic arguments for “greening now” vs. “cleaning up later”. We thus aim to provide an analytical reference point for the growing body of evidence on economic co-benefits of green transformations, helping to structure the debate, to widen its perspective and encourage further research on emerging aspects. Second, we put this structure in the context of latecomer countries, making the identified issues relevant for their framework conditions and showing where and how the articles assembled in the Special Issue fit in the overall debate. Third, we broaden our assessment to include particularly under-researched areas of green transformations in latecomer countries, such as electric mobility, agriculture, steel, and waste management.
In reviewing the evidence, we find that early greening is likely to bring economic co-benefits, for example in terms of efficiency-induced competitiveness and in gaining a foothold in the markets of the future. Delaying action, in contrast, risks permanent environmental damage, lock-in of polluting socio-technical pathways, and losses from asset stranding. Yet, the decision between “greening now” and “cleaning up later” is not dichotomous. Careful timing and sequencing of green policy reforms are key, and political decision makers can select and design their national policies in ways that turn changing framework conditions into economic opportunities.
The smart manufacturing systems (SMS) offer several advantages compared to the traditional manufacturing systems and are increasingly being adopted by manufacturing organizations as a strategy to improve their performance. Developing an SMS is expensive and complicated, integrating together various technologies such as automation, data exchanges, cyber-physical systems (CPS), artificial intelligence, internet of things (IoT), and semi-autonomous industrial systems. The Small, Medium and Micro Enterprises (SMMEs) have limited resources and therefore, would like to see the benefits from investments before allowing adopting SMS. This study uses a combination of exploratory and empirical research design to identify and validate the performance measures relevant to the evaluation of SMS investments in auto-component manufacturing SMMEs based in India. The study found that an Industry 4.0 enabled SMS offer more competitive benefits compared to a traditional manufacturing system. The planned investments in SMS can be evaluated on ten performance dimensions namely, cost, quality, flexibility, time, integration, optimized productivity, real-time diagnosis & prognosis, computing, social and ecological sustainability. Proposed novel Smart Manufacturing Performance Measurement System (SMPMS) framework is expected to guide the practitioners in SMMEs to evaluate their SMS investments.
Argues that well-designed environmental taxation proves especially valuable in developing countries, where it can reduce emissions, increase domestic revenues, and generate positive welfare effects. Environmental tax reform (ETR) can help finance ministries raise much-needed domestic funds for expanding public expenditure, can be simple to design and implement, and can provide the fiscal foundation upon which developing countries achieve both the Sustainable Development Goals (SDGs) and their Nationally Determined Contributions (NDCs). Reforms to domestic fiscal policy include variants of ETR that raise energy taxes upstream (at the point of import or extraction of fossil fuels) and recycle revenues through reduced labor taxes or increased social spending and public investment. The range of individual effects that ETR can have on well-being can come from reducing local air pollution or improving the economic efficiency of the tax system. Despite the strong potential for ETR, large gaps in environmental tax levels persist globally and are especially high in developing countries.
Subsidizing energy has been widely used but is economically unfavorable. The Malaysian government has shown strong intention to reduce energy subsidies recently, but face challenges to prepare policy instruments to manage the impact. This study develops a Computable General Equilibrium (CGE) model with breakdown of households by income level to evaluate the potential impacts of removing energy subsidies on the Malaysian economy. It is shown that removing petroleum and gas subsidy would improve economic efficiency and increase GDP up to 0.65%. Budget deficit would be largely reduced after removing the petroleum subsidies, especially when the saved subsidy cost is not budgeted for other expenditure. Households would be worse off in most scenarios due to higher price level, but some compensation policy could make the lowest income group no worse than baseline, without harm the economy. The reduction in carbon emissions ranges 1.84–6.63% in different scenarios. The simulation results suggest Malaysia to completely remove all fuel subsidies and use the saved funding to cut budget deficit or spend on education, health and other service sector. It is also necessary to set a compensation scheme to minimize public resistance and make sure such scheme is affordable.
While the potential adverse effects of fossil fuel subsidy reform are well documented for households, the literature has largely ignored the effect of subsidy reform on firms’ competitiveness. This paper discusses how firms are affected by, and respond to, energy price increases caused by subsidy reforms. It highlights that cost increases (both direct and indirect) do not necessarily reflect competitiveness losses, since firms have various ways to mitigate and pass on price shocks. This paper presents and discusses direct and indirect transmission channels for price shocks, and firms’ response measures: absorbing cost shocks into profits, inter-fuel substitution, increasing energy and material efficiency, and passing on price increases. It argues that further micro-econometric studies using enterprise surveys are essential for quantifying the role of these mechanisms, and for designing policy measures that ensure that competitiveness losses due to subsidy reforms are minimised.
This paper analyses welfare impact of energy subsidy reform in India based on the data from 1970‐ 71 to 2014‐
15. To this end, Auto Regressive Distributed Lag (ARDL) model and Error Correction Model (ECM) have been
estimated to quantify the short-run and long-run price and the income elasticity of various energy products. The
results show that the price elasticity of demand for all fossil fuels is low, but the respective income elasticity is
higher. Therefore, an increase in the general price level caused by the subsidy reform will lead to the erosion of
real income and will have related welfare implications in India. The results also reveal that energy expenditure
will obviously increase and hence energy consumption will decline depending upon the extent of the withdrawal
of subsidy. Therefore, policy makers in India, while undertaking further reforms, must ensure that the subsidy
reaches to those who truly deserve, so that the socioeconomic casualty of reforms can be minimized along with achieving fiscal goals.
We develop a methodology for testing Hicks's induced innovation hypothesis by estimating a product-characteristics model of energy-using consumer durables, augmenting the hypothesis to allow for the influence of government regulations. For the products we explored, the evidence suggests that (i) the rate of overall innovation was independent of energy prices and regulations; (ii) the direction of innovation was responsive to energy price changes for some products but not for others; (iii) energy price changes induced changes in the subset of technically feasible models that were offered for sale; (iv) this responsiveness increased substantially during the period after energy-efficiency product labeling was required; and (v) nonetheless, a sizable portion of efficiency improvements were autonomous.
Information and communication technology (ICT) has been ascribed a crucial role for raising resource and energy efficiency and thereby contributing to environmental abatement. We investigate this conjecture by providing evidence on the relationship between ICT and energy demand. Using a cross-country cross-industry panel data set covering 13 years, 10 OECD countries, and 27 industries, our results show that ICT is associated with a significant reduction in total energy demand. This relationship differs with regard to different types of energy. ICT is negatively related to the demand for non-electric energy, but is not associated with a significant change in the demand for electric energy. Quantitatively, the effect of ICT on energy demand is greater than that on labor demand. The results survive several robustness checks which allow for various forms of heterogeneity and tackle the potential endogeneity of ICT capital.
(DISCLAIMER: Not all mathematical symbols in the abstract will display properly -
please see the abstract in the pdf). This paper considers testing the hypothesis that errors in a panel data model are weakly cross sectionally dependent, using the exponent of cross-sectional dependence, introduced recently in Bailey, Kapetanios and Pesaran (2012). It is shown that the implicit null of the CD test depends on the relative expansion rates of N and T. When T = O (Nsuperscript6), for some 0 < ε ≤ 1, then the implicit null of the CD test is given by 0 ≤ α < (2 – ε) / 4, which gives 0 ≤ α < ¼, when N and T tend to infinity at the same rate such that T/N 0 ≤ α < ¼, with κ being a finite positive constant. It is argued that in the case of large N panels, the null of weak dependence is more appropriate than the null of independence which could be quite restrictive for large panels. Using Monte Carlo experiments, it is shown that the CD test has the correct size for values of α in the range [0, 1/4], for all combinations of N and T, and irrespective of whether the panel contains lagged values of the dependent variables, so long as there are no major asymmetries in the error distribution.
Abstract This paper provides the first meta-analysis of the interfuel substitutability literature. The sample includes 47 studies of interfuel substitution in the industrial sector, in manufacturing industry or manufacturing sub-industries, or in the macro-economy of a variety of developed and developing countries. Meta-regressions are estimated for the six shadow elasticities of substitution between coal, oil, gas and electricity. I find that at the level of the industrial sector as a whole the oil–coal, oil–gas, oil–electricity and gas–electricity shadow elasticities of substitution are significantly greater than unity. The remaining elasticities – between coal and gas and coal and electricity – are insignificantly different from unity or zero due to their large standard errors. Substitution possibilities seem more constrained at the macro level and less constrained at lower levels of aggregation. Estimates of the elasticities of substitution from cross-section regressions are generally largest whereas fixed effects panel estimates are intermediate in magnitude, and time-series estimates are mostly much smaller. In order to obtain more precise and less biased estimates of long-run elasticities of substitution, there is a need for additional primary studies using large samples and/or the between estimator which econometric research suggests is likely to provide the best estimates of long-run elasticities.
In this piece, we consider the role of small and medium manufacturing enterprises in Asia's sustainable development. Asia has undeniably made huge leaps in its economic growth in the past three decades, however, this growth is not without a cost, especially to societal and environmental wellbeing. More recently, there are signs of increasing realization of this problem and some initiatives to ameliorate it. Yet, the literature has not captured some of these developments and initiatives. This article systematically introduces and summarizes the recent scholarly discussions in IJPE on SED and the role of small and medium manufacturing enterprises (SMMEs) in Asia.
This paper evaluates the welfare impacts of carbon taxation on South African households. Using household survey data for the period 2009–2015, I estimate the Quadratic Almost Ideal Demand System (QUAIDS) model to obtain elasticities and use them to simulate consumer responses to price changes resulting from carbon taxation. Results show that an increase in electricity and public transport prices following a carbon tax policy is regressive while a price increase in motor fuel is progressive. In addition, when there is a simultaneous increase in the prices of energy goods, the poorest and middle income households disproportionately suffer a higher welfare loss compared to the richest households. I also show that income is important in determining whether rural households experience a higher or lower welfare loss than urban households. Furthermore, revenue recycling in terms of lump-sum transfers of the tax revenue to households below the national poverty lines and the bottom 40% would offset the welfare loss from a carbon tax policy in South Africa.
Environmental goods are goods used or produced by industry that reduce air and water pollution and optimize the use of resources in production. Despite several Sustainable Development Goals explicitly calling for resilient and sustainable development, the diffusion of such goods is still low, especially in developing countries. Only sporadic research on the determinants of international trade of environmental goods is available. Based on the OECD classification of environmental goods, this gap is filled by adopting a gravity model, using trade data over a time span of 15 years from 1999 to 2014 across 71 countries. The central message of this paper is that environmental regulatory stringency is a key determinant of environmental goods trade. It is specifically provided evidence that a substitution effect exists between environmental regulation stringency and trade of environmental goods. In line with empirical literature on traditional gravity models, increased capacity to innovate, cultural ties, geographical proximity and financial uncertainty also play a role.
The immediate effect of carbon pricing policy is to raise energy costs, which in turn reduces energy consumption either through induced capital under-utilization or investments in new energy-efficient capital. The latter mechanism, which implies improvements in energy efficiency, is realized in the longrun while the former, which has implications for capital productivity, tends to occur in the short-run. We employ panel vector auto regressions as well as co-integration and error correction techniques to identify these short- and the long-run relationships including their differences across Canadian industries.
Since the early 1990s, the validity of the Porter hypothesis has been the focus of intense research to establish whether well-designed environmental regulation may enhance—rather than reduce—competitiveness. However, little consensus exists on the extent to which environmental regulation might generate profitability enhancing innovation offsets. This paper reports on a meta-analysis of 103 publications that estimate the relationship between environmental regulation and firm- or country-level productivity or competitiveness. We find considerable heterogeneity in both the sign and significance level of over 2,000 estimated “effect sizes” in these studies. A positive effect of environmental regulation is more likely at the state, region, or country level, compared to facility, firm, or industry level—although in both cases the most likely scenario is statistical insignificance. These findings are consistent with the strong version of the Porter hypothesis whereby strict but flexible environmental regulations induce innovation and over time increase country-level competitiveness.
This paper argues computable general equilibrium model and assess impact of energy taxation on economy, environmental and public health quality in Tianjin. In order to investigate different energy taxation based on medical cost and labor loss, the computable general equilibrium model integrating with input-output table and social accounting matrix (SAM) was constructed. The medical expense caused by air pollution of Tianjin in 2007 is 396 million yuan and death for 18104 people, which accounted for the total GDP and population 0.754‰ and 1.6‰, respectively. The results show that the enery taxes levy can improve the GDP, but it is only slightly. The energy taxes have adverse impact on energy sector because that the energy cost is increased. The scale of production is reduced, and the capital and labor resources are transferred to low energy consumption low emissions sector. The energy tax levy can reduce air pollutants concentration and improve air environmental quality. The PM10, SO2 and NO2 concentration in the energy taxes 5%-30% was reduced by 0.24%-0.24%, 0.09-0.52% and 0.29%-0.52% respectively. The medical expense has little impact on GDP, but labor loss has a certain effect on GDP. For higher energy taxes rate, the health effects on GDP can reach 0.06%-0.16%. This simultaneous economic and environmental improvement and health effect would thus have positive implications regarding energy taxes of the country.
A market reform implemented in Oman in 2004 changed the electricity sector from being a vertically integrated system owned and operated by the Ministry of Housing, Electricity, and Water to a new unbundled system populated by a range of companies and an independent regulator. The restructuring has supported a more than doubling of supplied energy in the succeeding decade, but in a manner that is unsustainable due to high subsidies and lack of supply mix diversity.
Until recently, most environmental groups viewed natural gas favorably in facilitating the transition to a low-carbon environment. Today, these groups as well as others have radically changed their perspective by opposing natural gas for electric generation. They also advocate ‘electricification,’ where fossil-fuel customers convert to electricity for water and space heating, and transportation. This article examines their arguments and policy recommendations.
This paper uses firm survey data from the manufacturing and mining sectors in Indonesia, and investigates the extent to which energy prices affect competitiveness (proxied by profitability). Persistent regional price differences due to Indonesia's insular geography enable this study to show that energy prices have a small (but statistically significant) adverse long-run effect on competitiveness – though different energy types matter in different sectors. By estimating cross and own price elasticities and Uzawa-Allen partial elasticities of (inter-fuel) substitution, this study also shows that firms have the ability to respond to higher energy prices by adjusting their energy mix, i.e. substituting certain energy goods for others. Moreover, this study shows that firms also respond to higher energy prices by increasing energy efficiency, and by passing on costs to end-users. Nevertheless, these response measures are not sufficient to fully mitigate the adverse effect of energy prices on firms. Based on these results, policy recommendations are offered which are of immediate relevance for the design of energy pricing reforms.
This article reviews the empirical literature on the impacts of environmental regulations on firms’ competitiveness as measured by trade, industry location, employment, productivity, and innovation. The evidence shows that environmental regulations can lead to statistically significant adverse effects on trade, employment, plant location, and productivity in the short run, in particular in a well-identified subset of pollution- and energy-intensive sectors, but that these impacts are small relative to general trends in production. At the same time, there is evidence that environmental regulations induce innovation in clean technologies, but the resulting benefits do not appear to be large enough to outweigh the costs of regulations for the regulated entities. As measures to address competitiveness impacts are increasingly incorporated into the design of environmental regulations, future research will be needed to assess the validity and effectiveness of such measures and to ensure they are compatible with the environmental objectives of the policies.
This paper represents an empirical investigation of the “weak” and “strong” Porter Hypothesis (PH) focusing on the manufacturing sectors of European countries between 1997 and 2009. By and large, the literature has analyzed the impact of environmental regulation on innovation and on productivity generally in separate analyses and mostly focusing on the USA. The few existing studies focusing on Europe investigate the effect of environmental regulation either on green innovation or on performance indicators such as exports. We instead look at overall innovation and productivity impact that are the most relevant indicators for the “strong” PH. This approach allows us to account for potential opportunity costs of induced innovations. As a proxy of environmental policy stringency we use pollution abatement and control expenditures (PACE), which represent one of the few indicators available at the sectoral level. We remedy upon its main drawback, that of potential endogeneity of PACE, by adopting an instrumental variable estimation approach. We find evidence of a positive impact of environmental regulation on the output of innovation activity, as proxied by patents, thus providing support in favor of the “weak” PH in line with most of the literature. On the other front, we find no evidence in favor or against the “strong” PH, as productivity appears to be unaffected by the degree of pollution control and abatement efforts.
The pollution haven hypothesis affirms that an open market regime will encourage the flow of low-technology polluting industries toward developing countries because of potential comparative advantages related to low environmental standards. In contrast, the hypothesis suggested by Porter and van der Linde claims that innovating firms operate in a dynamic competitive situation which allows global diffusion of environmental-friendly technologies. Environmental regulation may represent a relevant mechanism through which technological change is induced. In this way, countries that are subject to more stringent environmental regulations may become net exporters of environmental technologies. This paper provides new evidence on the evolution of export flows of environmental technologies across different countries for the energy sector. Advanced economies, particularly the European Union, have increasingly focused on the role of energy policies as tools for sustaining the development path. The Kyoto Protocol commitments, together with growing import dependence on energy products, have brought attention to the analysis of innovation processes in this specific sector. The analysis uses a gravity model in order to test the determinants and the transmission channels through which environmental technologies for renewable energies and energy efficiency are exported to advanced and developing countries. Our results are consistent with the Porter and van der Linde hypothesis where environmental regulation represents a significant source of comparative advantages. What strongly emerges is that the stringency of environmental regulation supplemented by the strength of the National Innovation System is a crucial driver of export performance in the field of energy technologies.
This article provides a review of global energy subsidies—of definitions and estimation techniques, their type and scope, their drawbacks, and effective ways to reform them. Based on an assessment of both policy reports and peer-reviewed studies, this article presents evidence that energy subsidies could reach into the trillions of dollars each year. It also highlights how most subsidies appear to offer net costs to society, rather than benefits, in the form of government deficits, increased waste, shortages of energy fuels, and aggravated environmental impacts, among others. The review then talks about how tools such as best practices in measurement and estimation, subsidy elimination, impact studies, and adjustment packages can dramatically reorient subsidies so that they become more socially and environmentally sustainable. It also argues that such efforts need to explicitly learn from previous successes and recognize the importance of political economy, the possible winners and losers to subsidy reform. The final part proposes a future research agenda.
This paper estimates fossil fuel subsidies and the economic and environmental benefits from reforming them, focusing mostly on a broad notion of subsidies arising when consumer prices are below supply costs plus environmental costs and general consumption taxes.
Estimated subsidies are $4.9 trillion worldwide in 2013 and $5.3 trillion in 2015 (6.5% of global GDP in both years). Undercharging for global warming accounts for 22% of the subsidy in 2013, air pollution 46%, broader vehicle externalities 13%, supply costs 11%, and general consumer taxes 8%. China was the biggest subsidizer in 2013 ($1.8 trillion), followed by the United States ($0.6 trillion), and Russia, the European Union, and India (each with about $0.3 trillion). Eliminating subsidies would have reduced global carbon emissions in 2013 by 21% and fossil fuel air pollution deaths 55%, while raising revenue of 4%, and social welfare by 2.2%, of global GDP.
Using data on Indian firms, I provide evidence on how electricity prices affect a firm's industry choice and productivity growth. I construct an instrument for electricity price as the interaction between coal price and the share of thermal generation in a state's total electricity generation capacity. I find that in response to an exogenous increase in electricity price, firms switch to less electricity-intensive production processes within narrowly defined industries, reduce their machine intensity, and have lower output and productivity growth rates. Thus, electricity constraints may limit a country's growth by leading firms to operate in industries with fewer productivity-enhancing opportunities. © 2017 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
We estimate the effects of electricity shortages on Indian manufacturers, instrumenting with supply shifts from hydroelectric power availability. We estimate that India's average reported level of shortages reduces the average plant's revenues and producer surplus by 5 to 10 percent, but average productivity losses are significantly smaller because most inputs can be stored during outages. Shortages distort the plant size distribution, as there are significant economies of scale in generator costs and shortages more severely affect plants without generators. Simulations show that offering interruptible retail electricity contracts could substantially reduce the impacts of shortages.
Duqm is an emerging port city for both industrial and truism applications.Energizing such city requires careful utilization of all available resources. Due to its geographical location,Duqm can harness the wind
energy through developing grid connected wind farm. Therefore, a proper wind energy assessment using high temporal and spatial data is required before any financial investment.This paper investigates the assessment of alarge-scale wind energy potential in thee merging city of Duqm(Oman).The initial wind assessment is conducted by the mean of dynamical downscaling Ensemble Numerical Weather Prediction Models. Multi-criteria decision support system was used to analysis the land suitability for wind energy applications. 25MW wind farm is also simulated using WAsP to estimate the annual energy
production and the wake losses.
Based on patent data and industry specific energy prices for 18 OECD countries over 30 years we investigate on an industry level the impact of energy prices on green innovation activities. Our econometric models show that energy prices and green innovation activities are positively related and that energy prices have a significantly positive impact on the share of green innovations in non-green innovations. More concretely, our main model shows that a 10% increase of the average energy prices of the previous five years results in a 2.7% and 4.5% increase of the number of green innovations and the share of green innovations in non-green innovations, respectively. We also find that the impact of energy prices increases with an increasing lag between energy prices and innovation activities. Robustness tests confirm the main results.
To assess how capital stocks adapt to energy price changes, it is necessary to account for the impacts on different vintages of capital and to account separately for price-induced and autonomous improvements in the energy efficiency of capital stock. The results of econometric analysis for five manufacturing industries in 19 OECD countries between 1990 and 2005 indicate that higher energy prices resulted in smaller energy use due to both improved energy efficiency of capital stock and reduced demand for the energy input. The investment response to energy prices varied considerably across manufacturing industries, being more significant in energy-intensive sectors. The results of policy simulations indicate that a carbon tax can deliver significant reductions in energy consumption in the medium run with modest declines in energy-using capital stock.
Avoiding dangerous climate changes requires emission reductions in not only industrialized but also developing countries. This opinion piece argues that even if the ‘full incremental costs’ of abatement in developing countries would be covered by industrialized countries, the former's development prospects could be hampered by climate change mitigation due to the following reasons. First, financial inflows have the potential to induce a ‘climate finance curse’ similar to adverse effects related to natural resource exports. Second, increased use of more expensive low-carbon energy sources could delay structural change and the build-up of physical infrastructure. Third, higher energy prices could have negative effects on poverty and inequality. We conclude that these considerations should not be seen as an indication that one should abstain from emission reductions in developing countries. However, until developing countries' most severe concerns can be appropriately addressed, attention should be focused on measures that promote human well-being while saving emissions. Conflict of interest: The authors have declared no conflicts of interest for this article. For further resources related to this article, please visit the WIREs website.
One of the most persistent puzzles addressed by recent productivity research is the substantial decline in measured productivity growth during the 1970's. In this paper we trace a substantial part of the measured decline to the fact that traditional methods of productivity measurement assume that producers are in long-run equilibrium when in fact they may be in short-run or temporary equilibrium. We utilize the Marshallian framework of a short-run production or cost function with certain inputs quasi-fixed to provide a theoretical basis for accounting for temporary equilibrium. Within this theoretical framework it is the value of services from stocks of quasi-fixed inputs which should be altered rather than the quantity. The empirical application to U.S. manufacturing data 1958–81 shows that, depending on the measurement procedure, one can attribute somewhere between 18% and 65% of the traditionally measured decline in TFP growth between 1965–73 and 1973–81 to the effects of temporary equilibrium.
This paper presents a meta-analysis of capital-energy substitution elasticities. We distinguish between Morishima elasticities, which measure technological substitution potential, and cross-price elasticities, which measure actual percentage changes in capital demand in response to energy price changes. We estimate a meta-regression model with separate coefficients for the two elasticity samples. The results show that the heterogeneity in both the cross-price and Morishima elasticity samples can to a large extent be explained by study differences in, among others, model specification, data characteristics, region and time period. Controlling for potential sources of misspecification and aggregation bias we subsequently calculate short- and long-run elasticities for different regions and time periods. The resulting elasticities show that technological substitution potential is large, especially in the long run for North America. Despite substantial differences across regions and time periods, the estimated cross-price elasticities suggest capital-energy substitutability without exception.
In this paper, we develop a methodology for estimating marginal emissions of electricity demand that vary by location and time of day across the United States. The approach takes account of the generation mix within interconnected electricity markets and shifting load profiles throughout the day. Using data available for 2007 through 2009, with a focus on carbon dioxide (CO2), we find substantial variation among locations and times of day. Marginal emission rates are more than three times as large in the upper Midwest compared to the western United States, and within regions, rates for some hours of the day are more than twice those for others. We apply our results to an evaluation of plug-in electric vehicles (PEVs). The CO2 emissions per mile from driving PEVs are less than those from driving a hybrid car in the western United States and Texas. In the upper Midwest, however, charging during the recommended hours at night implies that PEVs generate more emissions per mile than the average car currently on the road. Underlying many of our results is a fundamental tension between electricity load management and environmental goals: the hours when electricity is the least expensive to produce tend to be the hours with the greatest emissions. In addition to PEVs, we show how our estimates are useful for evaluating the heterogeneous effects of other policies and initiatives, such as distributed solar, energy efficiency, and real-time pricing.
Can directed technical change be used to combat climate change? We construct new firm-level panel data on auto industry innovation distinguishing between "dirty" (internal combustion engine) and "clean" (e.g. electric and hybrid) patents across 80 countries over several decades. We show that firms tend to innovate relatively more in clean technologies when they face higher tax-inclusive fuel prices. Furthermore, there is path dependence in the type of innovation both from aggregate spillovers and from the firm's own innovation history. Using our model we simulate the increases in carbon taxes needed to allow clean to overtake dirty technologies.
Almost all empirical research that has attempted to assess the validity of the Porter Hypothesis has started from reduced-form models, e.g. by using single-equation models for estimating the contribution of environmental regulation (ER) to productivity. This paper addresses the Porter Hypothesis within a structural approach that allows us to test what is known in the literature as the “weak” and the “strong” version of the Porter hypothesis. Our “Green Innovation” model includes three types of eco investments and non-eco R&D to explain differences in the incidence of innovation. Besides product and process innovations we recognize eco-innovation as a separate type of innovation output. We explicitly model the potential synergies of introducing the three types of innovations simultaneously and their synergy in affecting total factor productivity (TFP) performance. Using a comprehensive panel of firm-level data built from four surveys we aim to estimate the relative importance of energy price incentives as a market based type of ER and the direct effect of environmental regulation on eco investment and firms’ decisions regarding the introduction of several types of innovations. The results of our analysis show a strong corroboration of the weak version of the Porter hypothesis but not of the strong version of the PH, in this case on TFP performance.
The electricity tariffs in Oman are subsidized and are based on a cost accounting approach and do not reflect the true cost incurred in generating, transmitting and distributing a kilowatt-hour of electricity at the consumer end. This paper presents the electricity tariff based on the estimation of long-run marginal cost at generation, 33 kV, and 415 voltage level for Ministry of Housing, Electricity & Water (MHEW) interconnected power system of Oman. The result shows that at the generation level a marginal kW costs US$ 75 per year and a marginal kWh costs 2.07 ¢/kWh. These costs increase as we move downstream from generation to consumer end. The average cost of electricity at the consumer end connected at 415 V is 6.52 ¢/kWh or 25.17 Bz/kWh.
Energy is directly related to the most critical social issues which affect sustainable development. Today there is a great incentive for countries to exploit renewable energies in order to slow down the changes in environment and to guard against future trends. This paper presents a review of the assessed potential of renewable resources and practical limitations to their considerable use in the perspective of present scenarios and future projections of the national energy for Oman. Solar and wind are likely to play an important role in the future energy in Oman provided that clear policies are established by the higher authority for using renewable energy resources. Comparison of different solar energy technologies revealed that Concentrator Photovoltaic (CPV) technology may constitute a more appropriate choice for large solar power plants implementation in Oman. Moreover, Oman will not be alone in the region in this regard as similar moves are carried out in other Middle Eastern countries. The status of energy conservation and demand-side management are also discussed in the paper.
Solar and wind energies are likely to play an important role in the future energy generation in Oman. This paper utilizes average daily global solar radiation and sunshine duration data of 25 locations in Oman to study the economic prospects of solar energy. The study considers a solar PV power plant of 5-MW at each of the 25 locations. The global solar radiation varies between slightly greater than 4 kWh/m2/day at Sur to about 6 kWh/m2/day at Marmul while the average value in the 25 locations is more than 5 kWh/m2/day. The results show that the renewable energy produced each year from the PV power plant varies
between 9000 MWh at Marmul and 6200 MWh at Sur while the mean value is 7700 MWh of all the 25 locations. The capacity factor of PV plant varies between 20% and 14% and the cost of electricity varies between 210 US$/MWh and 304 US$/MWh for the best location to the least attractive location, respectively. The study has also found that the PV energy at the best location is competitive with diesel generation without including the externality costs of diesel. Renewable energy support policies that can be implemented in Oman are also discussed.
This paper describes a more compelling case for industry to promote the non-energy benefits of energy efficiency investments. We do this in two ways to actively appeal to chief executive officers (CEOs) and chief financial officers (CFOs) primary responsibility: to enhance shareholder value. First, we describe the use of a project-by-project corporate financial analysis approach to quantify a broader range of productivity benefits that stem from investments in energy-efficient technologies, including waste reduction and pollution prevention. Second, and perhaps just as important, we present such information in corporate financial terms. These standard, widely-accepted analysis procedures are more credible to industry than the economic modeling done in the past because they are structured in the same way corporate financial analysts perform discounted cashflow investment analyses on individual projects. Case studies including such financial analyses, which quantify both energy and non-energy benefits from investments in energy-efficient technologies, are presented. Experience shows that energy efficiency projects’ non-energy benefits often exceed the value of energy savings, so energy savings should be viewed more correctly as part of the total benefits, rather than the focus of the results. Quantifying the total benefits of energy efficiency projects helps companies understand the financial opportunities of investments in energy-efficient technologies. Making a case for investing in energy-efficient technologies based on energy savings alone has not always proven successful. Evidence suggests, however, that industrial decision makers will understand energy efficiency investments as part of a broader set of parameters that affect company productivity and profitability.
A long-standing question is whether differences in management practices across firms can explain differences in productivity,
especially in developing countries where these spreads appear particularly large. To investigate this, we ran a management
field experiment on large Indian textile firms. We provided free consulting on management practices to randomly chosen treatment
plants and compared their performance to a set of control plants. We find that adopting these management practices raised
productivity by 17% in the first year through improved quality and efficiency and reduced inventory, and within three years
led to the opening of more production plants. Why had the firms not adopted these profitable practices previously? Our results
suggest that informational barriers were the primary factor explaining this lack of adoption. Also, because reallocation across
firms appeared to be constrained by limits on managerial time, competition had not forced badly managed firms to exit. JEL Codes: L2, M2, O14, O32, O33.