The government of Belarus (GoB) plans to increase district heating (DH) tariffs to cost-recovery levels and gradually phase out subsidies, replacing them with social assistance programs.
... See More + The purpose of this report is to analyze the social, sectoral, and fiscal impacts of the tariff reform and to identify and recommend measures to mitigate adverse impacts of DH tariff increases on the households. The analysis shows that a negative social impact is manageable if a tariff increase is accompanied by countervailing measures to compensate for the loss of purchasing power, in particular of the poor, through targeted social assistance, and energy efficiency programs. The reform is more likely to be successful if communication campaigns to address consumer concerns are carried out before significant price increases, and consumer engagement and monitoring systems are established. When tariff reform and mitigation measures are properly sequenced and coordinated, the reform will become more socially acceptable, consumers will benefit from better quality of services, the government will achieve positive fiscal savings, and the DH sector will become sustainable in the long term. The report is organized as follows: chapter one describes the GoB’s plans for the sector. Chapter two analyzes the principal challenges in the sector that necessitate tariff reform. Chapter three discusses tariff reform options and the likely impact of pursuing each of these options. Chapter four concludes by recommending a reform action package that includes customer communication and engagement, social protection measures, and investments in energy efficiency.
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Subsidies and cross-subsidies in the energy sector are common throughout Eastern Europe and Central Asia. In Belarus, revenues from an industrial tariff on electricity are used to cross-subsidize heating for households.
... See More + Input-output (IO) data and a household consumption survey are used to analyze the distributional impacts of this cross-subsidization. This paper illustrates cost shares and electricity-intensity of different sectors and consumption categories and uses the IO data to obtain first-order estimates of the distributional incidence of policy reform. The paper then analyzes distributional impacts of subsidy reform with a Computable General Equilibrium model. Although poorer households benefit from reduced heating costs, the increase in prices of other consumer goods due to higher electricity prices more than offsets the benefits they receive from the subsidies. The analysis finds that the current cross-subsidies are regressive, and policy reform would be highly progressive.
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Policy Research Working Paper WPS7385 AUG 06, 2015
This paper analyzes the dynamic effects of rate-of-return regulation on firms’ emissions compliance behavior when the price of emissions permits is uncertain.
... See More + The paper shows that uncertainty regarding the price of permits would motivate a regulated firm to adopt a more self-sufficient strategy and would reduce the cost-effectiveness of emission allowance trading. When allowance transactions are treated as capital investments, uncertainty could reverse the classic Averch-Johnson effect, so that a regulated firm would purchase fewer permits in the ex ante period than its unregulated counterpart. These results are driven by the asymmetric impact of a price change on the expected marginal value of allowances under rate-of-return regulation. A wider variation in the permit price and a decline in the regulated rate of return would amplify the asymmetry. These results have implications for the efficiency of the proposed global carbon trading system.
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Policy Research Working Paper WPS7343 JUN 26, 2015
Input-output analysis has been proven to be a powerful instrument for estimating embodied (direct plus indirect) energy usage through economic sectors.
... See More + Using 9 economic input-output tables of years 1987, 1990, 1992, 1995, 1997, 2000, 2002, 2005, and 2007, this paper analyzes energy flows for the entire city of Beijing and its 30 economic sectors, respectively. Results show that the embodied energy consumption of Beijing increased from 38.85 million tonnes of coal equivalent (Mtce) to 206.2 Mtce over the past twenty years of rapid urbanization; the share of indirect energy consumption in total energy consumption increased from 48 to 76, suggesting the transition of Beijing from a production-based and manufacturing-dominated economy to a consumption-based and service-dominated economy. Real estate development has shown to be a major driving factor of the growth in indirect energy consumption. The boom and bust of construction activities have been strongly correlated with the increase and decrease of system-side indirect energy consumption. Traditional heavy industries remain the most energy-intensive sectors in the economy. However, the transportation and service sectors have contributed most to the rapid increase in overall energy consumption. The analyses in this paper demonstrate that a system-wide approach such as that based on input-output model can be a useful tool for robust energy policy making.
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The European Union Emissions Trading Scheme is the first international cap-and-trade program for carbon dioxide and the largest carbon pricing regime in the world.
... See More + A significant concern over the Emissions Trading Scheme has been the potential impact on the competitiveness of industry. Using data on 5,873 firms in ten European countries during 2001-2009, this paper assesses the impact on three variables through which the effects on firm competitiveness may manifest -- unit material costs, employment and revenue. The analysis focuses on the three most heavily-emitting industries under the program -- power, cement, and iron and steel. Empirical results indicate that the Emissions Trading Scheme has had different impacts across these three sectors. Although no impacts are found on any of the three variables in the cement and iron and steel industries, a positive effect is found on both material costs and revenue in the power sector. The effect on material costs likely reflects fuel-switching to reduce carbon dioxide emissions, while that on revenue may be partly due to cost pass-through to consumers in a market that is less exposed to competition outside the Europen Union. Overall the findings do not substantiate concerns over carbon leakage, job loss or industry competitiveness during the study period.
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Policy Research Working Paper WPS6662 OCT 01, 2013
In the first post-transition decade after the fall of communism, Europe and Central Asia (ECA) moved its economy from plan to market. In the second decade, the 2000s, it moved from social division to inclusion.
... See More + The region has an opportunity to use the third decade, the 2010s, to move from brown to green growth making production and consumption more sustainable, increasing quality of life, and reducing impacts on the climate. Lowering climate change risks in ECA will involve many different actions that fall broadly into three areas: Some, like energy efficiency improvements, are often economically beneficial regardless of climate concerns. Others, like creating a good business environment for green enterprises, are investments that create new growth opportunities. Finally, actions like expanding wind and solar energy will have net costs for some time but are essential to tackling climate change. A simple framework helps guide climate action. The priorities are to use energy more efficiently, use cleaner energy, and manage natural resources better. Although price instruments like carbon or energy taxes tend to be most effective, climate action will also require regulations and investments such as fuel efficiency standards or research and development spending. Complementary growth, social, and environmental policies promote the broader benefits of climate action while limiting its costs. This report will show that climate action in ECA will benefit from rapid progress in three main areas: (a) large improvements in energy efficiency; (b) a shift to cleaner energy systems that will also improve local health and energy security; and (c) better management of green natural resources that will make the countries more economically productive while keeping more carbon out of the atmosphere.
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The aggregate manufacturing energy intensity of 28 countries in Eastern Europe and Central Asia had declined by 35 percent during 1998-2008. This study reveals strong evidence of convergence: less efficient countries improved more rapidly and the cross-country variance in energy productivity narrowed over time.
... See More + An index decomposition analysis indicates that energy intensities declined largely because of more efficient energy use rather than shifts from energy intensive to less intensive manufacturing activities. Income growth and energy price increases were the main drivers of the convergence. They dominated the impact of trade, which led to specialization in energy intensive industries.
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Policy Research Working Paper WPS6387 MAR 01, 2013
Feed-in tariffs have become the most widely used policy instrument to promote renewable energy deployment around the world. This paper examines the relation between tariff setting and policy outcome based on wind capacity expansion in 35 European countries over the 1991-2010 period.
... See More + Using a dynamic panel data model, it estimates the long-run elasticity of wind deployment with respect to the level of feed-in support. The analysis finds that higher subsidies do not necessarily yield greater levels of wind installation. Non-economic barriers and rent-seeking may have contributed to the weak correlation. On the other hand, the length of feed-in contract and guaranteed grid access are important determinants of policy effectiveness. A one-year extension of an original 5-year agreement on average increases wind investment by 6 percent annually, while providing an interconnection guarantee almost doubles wind investment in one year.
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Policy Research Working Paper WPS6376 FEB 01, 2013
In the two decades since they started their transition from command to market economy, countries in Europe and Central Asia (ECA) have gone through difficult changes.
... See More + During the 1990s, the first post-transition decade, many countries in the region reformed their economic systems. The reward was a recovery of output and incomes. In the second decade, the 2000s, policy makers focused on making this growth more inclusive. Poverty rates fell further, and public services and social security got better. The recent economic turmoil has caused setbacks, increasing both fiscal gaps and social hardship. But during this third decade, countries in ECA should not get distracted from giving attention to the third development objective, that of putting their economies on an environmentally sustainable growth path which improves the ecology and provides citizens with the quality of life that they expect. The time has come to elevate environmental sustainability, including a stable and predictable climate, to a development objective alongside economic growth and social inclusion. If this is done right, over the next two decades ECA's growth will be quicker, kinder, and cleaner.
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This paper analyzes the differential impact of climate change policies on employment in Eastern Europe and Central Asia. In particular, the paper examines (i) how vulnerable labor markets are in Eastern European and Central Asian countries to future carbon regulation, and (ii) what countries can do to mitigate some of the potential negative effects of these regulatory changes on employment.
... See More + In many aspects, the nature of the shock associated with climate regulation is similar to that associated with an increase in energy prices. Constraints on carbon emissions put a price on climate-damaging activities and make hydrocarbon-based energy production and consumption more expensive. As a result, firms in energy-intensive industries may react to higher energy prices by reducing production, which in turn would lead to lower employment. In the presence of frictions in labor markets, these sector shifts will cause resources to be unemployed, at least in the short term. Using principal component analysis, the paper finds that Eastern European and Central Asian countries vary greatly in their vulnerability and adaptability of employment to carbon regulation. Since the economy takes time to adjust, policy-makers will need to ensure that the incentives are there for new firms to emerge and employ workers, and that workers have the skills to respond to that demand. Moreover, governments have a role to play in ensuring that workers that are displaced have a proper safety net that will not only help in protecting their welfare, but will also allow workers to make more efficient labor market transitions.
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Policy Research Working Paper WPS6294 DEC 01, 2012
A pricing reform in Turkey increased the residential electricity tariff by more than 50 percent in 2008. The reform, aimed at encouraging energy efficiency and private investment, sparked considerable policy debate about its potential impact on household welfare.
... See More + This paper estimates a short-run residential electricity demand function for evaluating the distributional consequences of the tariff reform. The model allows heterogeneity in household price sensitivities and is estimated using a national sample of 18,671 Turkish households. The model also addresses the common problem of missing data in survey research. The study reveals a highly skewed distribution of price elasticities in the population, with rich households three times more responsive in adjusting consumption to price changes than the poor. This is most likely because the poor are close to their minimum electricity consumption levels and have fewer coping options. In addition, the welfare loss of the poorest quintile -- measured by the consumer surplus change as a percentage of income -- is 2.9 times of that of the wealthiest.
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Policy Research Working Paper WPS5831 OCT 01, 2011
Emission permit trading is a centerpiece of the Kyoto Protocol which allows participating nations to trade and bank greenhouse gas permits under the Framework Convention on Climate Change.
... See More + When market conditions evolve stochastically, emission trading produces a dynamic problem, in which anticipation about the future economic environment affects current banking decisions. In this paper, the author explores the effect of increased uncertainty over future output prices and input costs on the temporal distribution of emissions. In a dynamic programming setting, a permit price is a convex function of stochastic prices of electricity and fuel. Increased uncertainty about future market conditions increases the expected permit price and causes a risk-neutral firm to reduce ex ante emissions so as to smooth out marginal abatement costs over time. The convexity results from the asymmetric impact of changes in counterfactual emissions on the change of marginal abatement costs. Empirical analysis corroborates the theoretical prediction. The author finds that a 1 percent increase in electricity price volatility measured by the annualized standard deviation of percentage price change is associated with an average decrease in the annual emission rate by 0.88 percent. Numerical simulation suggests that high uncertainty could induce substantially early abatements, as well as large compliance costs, therefore imposing a tradeoff between environmental benefits and economic efficiency. The author discusses policy implications for designing an effective and efficient global carbon market.
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Policy Research Working Paper WPS4215 APR 01, 2007