Energy Subsidies Research Articles

Household heterogeneity impact of removing energy subsidies in China: Direct and indirect effect

Reforming subsidies for fossil fuels is a challenging prospect for many governments. The impact of such a reform on households is a major concern for the government. This paper investigates the heterogeneous impacts of eliminating energy subsidies on households in China from direct and indirect perspectives. The results of the direct effects show that the removal of energy subsidies, particularly for removing electricity and gas subsidies, has a greater negative impact on the poor than on the rich. From an indirect perspective, this article shows that the lower the per capita disposable income, the higher the proportion of consumption to disposable income, and the greater the indirect impact of eliminating subsidies. Meanwhile, the impact is not only related to household income but consumer goods. Moreover, the indirect effects of eliminating subsidies on households differ across energy types. Specifically, eliminating electricity subsidies has the greatest effect on households, followed by transportation fuel and gas. We suggest that targeted supportive measures need to be taken towards the implementation of subsidy reform, particularly in countries with greater inequality, to minimize the negative effects on the poor.

Household carbon and energy inequality in Latin American and Caribbean countries

Reducing inequality, eradicating poverty and achieving a carbon-neutral society are recognized as important components of the United Nations’ Sustainable Development Goals. In this study, we focus on carbon and energy inequality between and within ten Latin American and Caribbean (LAC) countries. Detailed carbon and energy footprint were estimated by combining the consumption profiles (2014) in ten LAC countries with environmental extended multi-regional input-output (MRIO) analysis. Our results show significant inequality of regional total and per capita carbon and energy footprint across the studied LAC countries in 2014. The top 10% income category was responsible for 29.1% and 26.3% of the regional total carbon and energy footprint, and their per capita carbon and energy footprint were 12.2 and 7.5 times of the bottom 10% earners in that region. The average carbon footprint of studied LAC countries varied between 0.53 and 2.21 t CO2e/cap (ton of CO2 equivalent, per capita), and the energy footprint ranged from 0.38 to 1.76 t SOE/cap (ton of Standard Oil Equivalent, per capita). The huge difference in total and per capita carbon emissions and energy consumption of different income groups suggests notable differences in climate change responsibility, and supports policies for achieving sustainable consumption in terms of carbon tax, renewable energy subsidy, and decarbonizing the consumption structure in different LAC countries.

Characterizing the association between low-income electric subsidies and the intra-day timing of electricity consumption

Electricity rate subsidies are an important policy mechanism to help low-income households afford necessary energy services, bringing substantial quality of life benefits to roughly 30% of California households. Resulting increases in consumption may unintentionally increase costly peak demand while also raising emissions of greenhouse gases and criteria air pollution from electricity generation, potentially motivating additional measures to shift consumption to hours with fewer unintended consequences. In a difference-in-differences study of interval data from over 30 000 northern California dwellings, we find that enrollment in the California Alternate Rates for Energy subsidy is associated with a ∼13% increase in electricity consumption, varying modestly across regions and seasons, increasing by an additional ∼3% during summer peak times. We find that peak demand costs associated with CARE are about $45 M per year but could fall by ∼1/3 with peak shifting to level demand.

Optimization and energy-economic assessment of a geothermal heat pump system

The high geothermal heat exchanger (GHE) installation cost is the main challenge encountered in the widespread use of geothermal heat pump (GHP) systems, so its optimization is vital for reducing the costs. In the present study, five main parameters ─the radius, length, and the number of wells, the external pipe's radius, and the flow discharge inside the pipe─ are optimized by genetic algorithm (GA) for a residential building in Tehran. Moreover, sensitivity analysis of several design parameters, which are not considered in the objective function, indicates that pipe thermal conductivity, borehole thermal conductivity, soil thermal conductivity, and borehole distance parameters had the highest effects on entropy generation (EG), respectively. Therefore, this approach can help engineers to select the most efficient parameters for improving their design. Eventually, the optimized GHP is investigated by energy and economic viewpoints. One-year energy simulation of these systems is conducted to determine the energy consumption. Simulation results suggest that the annual energy consumption of the GHP with the coefficient of performance (COP) of 5.6 is 10.111 MWh; whereas, the annual consumption of heat pumps with an air-source heat pump equals 42.222 MWh, which is 4.17 times greater than that of the GHP. A simulation over a 10-year period is also performed to consider the drop in performance of the GHE over time. Furthermore, the economic analysis results suggest that the payback period of this system is about 7.4 years, and the energy subsidy paid by the government will be reduced annually to 14, 417, 839 Iranian Rial (IRR).

CROSS-COUNTRY ANALYSIS OF THE COMPARATIVE EFFICIENCY OF GOVERNMENT SUPPORT FOR COAL AND LIGNITE PRODUCTION

In this research, we applied the DEA method (data envelopment analysis) for a cross-country analysis of the comparative efficiency of government support for coal production in eight countries: the leading producers of coal and lignite, three OECD countries with developed economies (the USA, Germany, and Australia), four BRICS countries with developing economies and emerging markets (China, India, Russia, and South Africa), and Indonesia – the largest producer of coal and lignite in Southeast Asia from 2013 to 2018. An extended version of the DEA method allowed us to evaluate not only technicalities, but also price efficiency of budget support for natural gas production in the considered countries. The data for the empirical model characterizing the volume of financial support to oil producers through budgetary transfers and tax expenditures was taken from the OECD statistical base. The obtained results indicate low efficiency of state support for coal and lignite production in Russia, the industry that is responsible for the largest generation and emission of greenhouse gases. In accordance with international obligations, Russia should solve this problem. To achieve this goal, the government should legislatively limit the funding of coal projects and exclude coal projects from the sphere of credit and export agencies, development banks, and state banks.Keywords: energy subsidies, government support, fiscal measures, coal and lignite production, operational environment, DEA methodJEL Classifications: H39, H54, C60DOI: https://doi.org/10.32479/ijeep.9550

Inter-state Climate Change Litigation: ‘Neither a Chimera nor a Panacea’

In the face of the difficulties of international climate diplomacy, ‘the invisible college of international lawyers’ has recently been called upon to devote more efforts ‘towards reviving the blunt edge of climate change-based national, regional, or international litigation, adjudication, and arbitration towards reaching sufficiency of climate pledges’ (Desierto 2019). This paper therefore reviews the use of international law arguments and remedies in climate change litigation, with a view to ascertain the related opportunities and constraints. In order to achieve this objective, this paper considers international legal practice in light of the typologies of climate change litigation identified in the literature (Peel and Osofsky 2015; Setzer and Vanhala 2019). This literature typically distinguishes between so-called ‘proactive’ litigation — initiated in order to engender policy change, for example, asking for the adoption or reform of legislation; and ‘reactive’ litigation — initiated to resist such change, for example, challenging the adoption of new or reformed legislation. Reactive litigation has long been common at the international level, whereby investors have instigated international investment disputes to resist reforms of renewable energy subsidies, with alternate fortunes (Baetens 2019). Proactive litigation at the international level, instead, has been rarer and more recent. It has largely focused on the use of international human rights remedies for complaining over states’ failure to mitigate climate change, and/or over states’ failure to address the impacts of climate change (Savaresi and Auz 2019). The possibility to make greater use of other international law instruments and remedies to address both issues has been at the centre of much scholarly speculation. Already in 2007, Faure and Nollkaemper suggested that, even though they faced ‘significant hurdles’, international liability suits could help to put pressure on states to reduce emissions (Faure and Nollkaemper 2007, 172). Much literature has considered the role of the law on state responsibility in this connection (Tol and Verheyen 2004; Verheyen 2005; Voigt 2008; Wewerinke 2019). No inter-state legal suits have however been lodged so far. Similarly, international judicial bodies, such as the International Court of Justice (Stephens 2019) or the International Tribunal on the Law of the Sea (McCreath 2020), could be asked to adjudicate over matters of compliance with international climate obligations on the basis of customary international law (Bodansky, Brunnee, Rajamani 2017). Again no inter-state legal suits have been lodged on this basis to date. This paper reviews these international litigation scenarios and ascertains opportunities and constraints, in light of developments occurred in recent years. Paraphrasing Bierly (Bierly, 1928), the paper concludes that, given the present state of international climate diplomacy, international litigation is neither a chimera nor a panacea, but represents one means at our disposal for delivering better climate protection.

Broad-based subsidies or targeted transfers? Distributional equity vs macroeconomic costs

ABSTRACT We study the trade-off between “broad-based energy subsidy” and “subsidy reform and targeted transfer” in the developing country context. We analyze the incidence of an electricity tariff differential subsidy program in Pakistan and find that the greater share of subsidy benefit goes to relatively non-poor households. We then conduct a computable general equilibrium exercise of electricity subsidy reform and targeted transfer, and our results indicate that redistributing savings from electricity subsidy reform improves poor households’ real income. However, this comes at the cost of short-term economic slowdown, before the economy returns to the benchmark level in the long term.

From NEDC to WLTP: Effect on the Energy Consumption, NEV Credits, and Subsidies Policies of PHEV in the Chinese Market

The switching from new European driving cycle (NEDC) to worldwide harmonized light vehicles test procedure (WLTP) will affect the energy consumption of plug-in hybrid electric vehicle (PHEV), and then affect the new energy vehicle (NEV) credit regulation and subsidy policy for PHEVs. This paper reveals the impact on energy consumption, NEV credit regulation, and subsidy policy for PHEV in the Chinese market of the switching from NEDC to WLTP based on qualitative analysis and quantitative calculation. The results show that the WLTP procedure is stricter than NEDC in the determination of road load, test mass, driving resistance forces, and tire selection. Firstly, the electricity consumption (EC) of PHEV in charge-depleting mode (CD) under the WLTP procedure is 26% higher than NEDC on average, which makes the all-electric range (AER) significantly lower under WLTP. The weight EC tested in the WLTP procedure is higher than NEDC. Secondly, the fuel consumption (FC) of PHEV in CD mode is related to the adjustment of the engine management system (EMS) and the size of battery energy under the WLTP procedure. For the FC in the charge-sustaining (CS) mode of PHEV under the WLTP procedure is 20% higher than NEDC on average. However, the weight fuel consumption of PHEVs under WLTP with a long AER may be lower than that of NEDC due to the characteristics of utility factor in the WLTP procedure. Thirdly, most PHEVs fail to meet the requirements of 50 km AER due to the switching of the test procedures. However, the Chinese government reduced the technical specification of PHEV’s AER under the WLTP procedure to 43 km to support the development of PHEV technology. It ensures that the switching of test procedures does not change the treatment that they could obtain, the NEV credits, and subsidy as a NEV in China. However, the increasing of the EC in CD mode and the FC in CS mode under the WLTP procedure makes the PHEV obtain lower credit and subsidy multiple compared with NEDC procedure.

Is Energy Subsidy Reform in an Oil-Exporting Small Economy Beneficial to Trade? Illustrations from Kuwait

AbstractThis article fills a gap in the literature by quantifying impacts of fossil fuel subsidy reform on trade (inflow and outflow) in an oil-producing, “almost small”, economy, using Kuwait as an example. It employs a two-region economy-wide model with oligopoly behaviour in a general equilibrium framework. The model embodies unique elements of Kuwait's economic structure, idiosyncratic rigidities, and distortions, including oligopolistic industrial structure and labour markets. Simulations show that energy subsidies have minimal effects on trade and on non-energy exports, largely due to the pervasiveness of oligopolies that sustain large markups and their collusive pricing. Reforming energy subsidies generates higher pro-trade effects if implemented during low (not high) oil prices because its negative effects are partially offset by efficiency gains and reduction in oligopoly markups. Yet, contrary to claims by proponents of reforms, these effects remain largely constrained unless appropriate incentives are introduced. These results have important policy implications. In developing oil-exporting economies with pervasive oligopolies, microeconomic reform can be a channel through which to achieve pro-trade effects of energy subsidy reform. Further, benefits beyond export expansion, such as higher economic efficiency, could be better motivators of energy subsidy reform in oil economies.

The Economy-Wide Impact of Subsidy Reform: A CGE Analysis

AbstractOil prices fell from around $US110 per barrel in 2014 to less than $US50per barrel at the start of 2017. This put enormous pressure on government budgets within the Gulf Cooperation Council (GCC) region. The focus of GCC economic policies quickly shifted to fiscal reform, including the removal of domestic subsidies on energy products. In this paper, we use a dynamic Computable General Equilibrium (CGE) model to investigate the economic impact of the gradual removal of subsidies on refined petroleum and electricity, with specific reference to the Kingdom of Saudi Arabia (KSA).Our study shows that removing subsidies eliminates a large distortion in the economy. This improves the efficiency of resource use, so that even though employment and capital in most years fall relative to baseline levels, real GDP rises. In addition, we show that fully-funded compensation payments offset the increases in energy prices, leaving economic welfare of the Saudi-national population little affected. Removing the energy subsidies leads to an improvement in the net volume of trade, while leading to a mixed outcome for industries.

Race to burn the last ton of carbon and the risk of stranded assets

A cap on global warming implies a tighter carbon budget which can be enforced with a credible second-best renewable energy subsidy designed to lock up fossil fuel and curb cumulative emissions. Such a subsidy brings forward the end of the fossil fuel era but accelerates fossil fuel extraction and global warming in the short run. A weaker fossil fuel oligopoly implies that anticipation of a given global carbon budget induces fossil producers to deplete reserves more voraciously and accelerate global warming. This race to burn the last ton of carbon is more intensive for the feedback than open-loop Nash equilibrium, so that the Green Paradox effect of a renewable energy subsidy is stronger. There is an intermediate phase of limit pricing to keep renewable energy producers at bay, which becomes much more relevant when a cap on global warming is enforced. A stronger fossil fuel oligopoly lengthens the period of limit pricing and typically brings forward the carbon-free era. Finally, the mere risk of a cap on global warming being enforced at some unknown, future date makes fossil fuel extraction more voracious and accelerates global warming.

Understanding the economic impact of interacting carbon pricing and renewable energy policy in China

Climate change is posing risks for human and natural systems, and one of the most important questions faced by policy makers is to reduce such risks and impacts through adaption and mitigation actions. As the country with the highest CO2 emissions, China is facing unprecedented challenges: climate change, energy structure transformation and socio-economic development all pose complex dilemmas for policy makers. The Chinese government has introduced energy policy and emission reduction measures to achieve its climate change mitigation targets. However, overlap between these measures may generate great uncertainty about their performance. By using a multi-regional computable general equilibrium (CGE) model, this study examines the economic impacts of implementing a nationwide carbon market and a renewable energy subsidy in the power sector in China. The study finds that a renewable energy policy would increase the economic cost of reducing greenhouse gas emissions and lead to a lower carbon price level if a carbon pricing mechanism were in place. However, the combination of the two policies indeed shows advantages in achieving emission reduction targets and renewable energy promotion targets. While an emission trading scheme is necessary for reducing emissions effectively, a renewable energy policy could promote the large-scale use of renewable energy in the electricity sector. In addition, the adoption of a renewable energy policy could yield substantial inter-regional capital inflow to central and western regions. This would improve low-carbon investment in less developed regions, and thus an appropriately designed policy mix would be sensible.

Reducing inequality resulting from UK low-carbon policy

ABSTRACT In the UK, the cost of low-carbon policies, such as renewable energy subsidies, household retrofit and installation of smart meters, adds an additional 13% to household energy bills. Given that the lowest income households spend 10% of their income on heating and powering their homes, whereas the highest spend less than 1.5%., any increase in prices hits the poor disproportionately. Using an energy-extended multiregional input-output model combined with household expenditure survey data, we calculate the full supply-chain energy embodied in goods and services consumed by different households. First, we demonstrate that low-carbon policy costs are placed on a small percentage of household energy demand – perversely on items representing a higher proportion of expenditure for low income households. The lifestyles of higher income households require nearly five times more energy than the lowest, but because levies are only raised on energy bills, those with high incomes pay only 1.9 times more towards policy costs. Second, we evaluate alternative approaches to funding low-carbon policy: a household energy footprint approach, taking account of households’ full energy service demands; and funding the costs from general taxation payments. We explore the demographic characteristics of the households who would pay less towards funding policy costs and those who would take on a larger burden under these new proposals. While none of the approaches offer a ‘perfect solution’ in terms of distributional impacts, raising the funds through general taxation offers a fairer and practical solution. Key policy insights Low income households currently pay disproportionately more towards low-carbon policy costs in the UK. Funding low-carbon policy through general taxation would better align energy demand with policy costs, and would reduce costs for 65% of UK households. Households comprising women of retirement age living alone; single parent families; and households who have never worked or are long-term unemployed could see reductions in bills by recovering climate policy costs through general taxation. A general taxation approach requires leadership and long-term commitment to avoid leaving the policy vulnerable to short-term budgetary changes.

Micro-cogeneration based on solid oxide fuel cells: Market opportunities in the agriculture/livestock sector

Bio-waste embeds an extraordinary renewable potential, and it becomes a source of energy savings when transformed into a valuable resource, like biogas. Cogeneration (CHP) from biogas employing high-temperature Solid Oxide Fuel Cells (SOFCs) scores a high sustainability level, thanks to improved environmental and energy performances. The synergy between the niche market of small/micro biogas producers and SOFCs might act as a springboard to open market opportunities for both SOFC commercialization and business upgrade of small farms. However, local regulations, waste management, renewable energy subsidies and, above all, availability of eligible sites, determine real chances for on-the-ground implementation.Through a detailed analysis of the application scenario, this research aims at investigating opportunities for the experimentation of SOFC–CHP in small biogas plants and identifying the possible bottlenecks for future deployment. When it becomes relevant, energy conversion of livestock (especially cattle and swine) and agriculture waste requires SOFC modules from 10 kWe to 35 kWe. This is in line with the current status of SOFC suppliers. Moreover, considering the fuel cell market roll-out, the average levelized cost of electricity is expected to decrease from 0.387 €/kWh to 0.115 €/kWh, when electricity is produced from livestock waste available on-site.

The asymmetric effects of oil price changes on environmental pollution: evidence from the top ten carbon emitters.

The basic purpose of this study is to scrutinize the asymmetric effect of oil price changes on environmental pollution in Canada, China, India, Iran, Germany, Japan, Russia, South Korea, Saudi Arabia, and the USA. The study uses time series annual data of selected courtiers from 1981 to 2018 and applies non-linear ARDL (NARDL) model to examine the long- and short-run asymmetries. The results show that positive shocks in diesel prices in the USA, India, Japan, Germany, South Korea, Iran, and Canada, while negative shocks in China and India reduce carbon emissions in the long run. However, an increase in gasoline prices in Russia and Iran while the decrease in gasoline prices in the USA, Russia, Japan, and Canada decreases in carbon emissions in the long run. Asymmetric findings also suggest that positive and negative changes in oil prices affect carbon emissions differently in China, the USA, India, Russia, Japan, Germany, South Korea, Iran, Saudi Arabia, and Canada in the short and long run. However, sign and magnitude of positive and negative shocks of oil prices are more important in environmental economics polices. Therefore, based on sign and magnitude, more taxation of fossil fuel and clean energy subsidies are recommended for the top carbon-emitting economies.

Sustainability evaluation of biomass direct gasification using chemical looping technology for power generation with and w/o CO2 capture

Sawdust direct gasification using chemical looping with hematite as an oxygen carrier was investigated in a 10 kWth interconnected fluidized bed reactor. This was used to develop a biomass chemical looping gasification combined cycle (BCLGCC) model using Aspen Plus software. A technical analysis of a scaled up, simulated and validated 650 MW power plant using BCLG experimental results and industrial data was conducted. The analysis focused on investigating critical parameters that have a significant effect on syngas quality and quantity, hence optimizing the gasification process to obtain higher energy efficiencies for subsequent power generation. An economic and sustainability assessments comparing BCLGCC with 4 different power generation technologies with and w/o CCS was performed. BCLGCC presents promising economic and environmental results, showing that the efficiencies of the CCS and Non-CCS plants are equal to 36% and 41%, respectively, with a COE (including government renewable energy subsidies) for both CCS and Non-CCS equal to 15.9 ¢/kWh and 12.8 ¢/kWh, both of which are lower than the average COE in the UK (approximately 17.7 ¢/kWh). This highlights the technical and economic potential and feasibility of BCLGCC compared to conventional power generation processes while promoting Bioenergy with Carbon Capture and Storage (BECCS) technology.

Modeling Nearly Zero Energy Buildings for Sustainable Development in Rural Areas

The energy performance of buildings and energy-saving measures have been widely investigated in recent years. However, little attention has been paid to buildings located in rural areas. The aim of this study is to assess the energy performance of two-story residential buildings located in the mountainous village of Palangan in Iran and to evaluate the impact of multiple parameters, namely building orientation, window-to-wall ratio (WWR), glazing type, shading devices, and insulation, on its energy performance. To attain a nearly zero energy building design in rural areas, the building is equipped with photovoltaic modules. The proposed building design is then economically evaluated to ensure its viability. The findings indicate that an energy saving of 29% can be achieved compared to conventional buildings, and over 22 MWh of electricity can be produced on an annual basis. The payback period is assessed at 21.7 years. However, energy subsidies are projected to be eliminated in the near future, which in turn may reduce the payback period.

An innovative executive and financial mechanism for energy conservation in new and existing buildings in Iran

One of the most effective measures for building energy conservation is the implementation of energy codes. The building energy codes introduction in Iran started two decades after the first oil crisis in the early 1970s by establishing the building energy conservation regulation called Issue 19. Nowadays, due to some financial and executive barriers, the implementation of Issue 19 is faced with some difficulties. The most critical obstacle is the low price of energy carriers, which lead to high subsidies of energy and the reluctance of the building owners to implement the regulation. The main goal of this paper is the introduction of an innovative financial and executive mechanism for implementation of Issue 19 in both new and existing buildings to achieve sustainability and resiliency. The cost–benefit analysis approach, along with SWOT technique and a comprehensive review of global experiences, was applied to introduce proper financial and executive mechanisms to determine the economic and social aspects of energy conservation programs for implementation of energy saving in buildings. The presented mechanism indicates the role of all different related parties, such as the government, banking system, energy-saving companies, building owners, and municipality, to achieve this goal. The results indicated that with a cost of $10 million, the benefits of implementation of the introduced mechanism are over 5.78 billion dollars.

CAN ENERGY CONSUMPTION AND BENEFIT PROGRAMS EXPLAIN ONE’S LIVING STANDARDS AFTERWARDS? EVIDENCE FROM NORTHERN SULAWESI, INDONESIA

The Indonesian government has been serious in alleviating poverty in Indonesia through the implementation of public benefit programs including alterations in energy subsidy program. Generally, the poverty rate has finally reached a single digit. On the other hand, the Human Development Index as one indicator of living standard has not shown improvement as fast as the improvement in the poverty rate. A question remains. After all benefit programs are in effect, are the living standards of people improving? This study relies on a survey covering 315 respondents residing in North Sulawesi Province, Indonesia. Ordinary least square and ordered logistics models are used to analyze the survey data. The findings suggest that spending on electricity reduces the ability to meet daily needs but not necessarily makes lives better or worse. BPJS health insurance holders tend to have a lower rate of better living after benefit programs take place as compared to non-holders. Additionally, being the holder does not statistically affect the ability to meet daily needs. Having good academic ranks in high school is associated with having better lives. In contrast, having these ranks tend to reduce the ability to meet daily needs.Keywords: Energy Consumption; Better Lives; Daily Needs; Living StandardsJEL Classifications: O1, Q48, I32, H53DOI: https://doi.org/10.32479/ijeep.9208

ASSESSING THE ENERGY SUBSIDY REFORM IN INDONESIA THROUGH DIFFERENT SCENARIOS

This paper provides a comprehensive study on energy subsidy reform simulations in Indonesia by employing two new approaches, namely, the Almost-Ideal Demand System Iterated Linear Least-Square and SUBSIM. Periods of low and high oil prices are also accounted in this paper; further, it reveals that in 1999, when oil prices were low, this reform was possible due to Indonesia’s status as a net oil exporter and precise selected-reformed energy goods; however, the major concerns were the unsupporting welfare situations and the depreciation of the rupiah after the Asian Financial Crisis in 1997. In 2012, the evidence shows that despite high oil prices and Indonesia being a net oil importer, this reform saved more for the government and made significant welfare impacts. Overall, this paper suggests that this reform is feasible when at least some factors, i.e., stable national exchange rate, conducive welfare situations, availability of potential recipients’ database, and functioning government, are well-established. Keywords : Almost-Ideal Demand System; Energy goods; Simulation; Subsidy reform; Indonesia. JEL Classifications: D12, H53, I38, Q48 DOI: https://doi.org/10.32479/ijeep.9223