Machiel Mulder

Emissions trading and competitiveness: pros and cons of relative and absolute schemes

Emissions trading is a hot issue. At national as well as supranational levels, proposals for introduction of emissions trading schemes have been made. This paper assesses alternative emissions trading schemes at domestic level: (1) schemes where the total level of emissions is fixed (absolute cap-and-trade), (2) schemes where the allowable level of emissions per firm is related to some firm-specific indicator (relative cap-and-trade), and (3) mixed schemes which combine elements of the above alternatives. We present a quantitative assessment of these alternatives for climate change policy in the Netherlands. It is concluded that while relative cap-and-trade would avoid negative effects on competitiveness, it would not reduce emissions at the lowest costs. Besides, the addition of a trade system to existing relative standards does not result in additional emission reduction; it should be combined with other policy measures, such as energy taxes, in order to realise further reduction. Absolute cap-and-trade leads to efficient emissions reduction, but, implemented at the national level, its overall macroeconomic costs may be significant. The mixed scheme has as drawback that it treats firms unequal, which leads to high administrative costs. We conclude that none of the trading schemes is an advisable instrument for domestic climate policy.

Costs and Benefits of Vertical Separation of the Energy Distribution Industry: The Dutch Case

This paper applies insights from the economic literature to evaluate costs and benefits of the policy decision recently taken by the Dutch government to introduce ownership separation between energy distribution on the one hand, and production and retail on the other. The major benefit of this measure is that it enables the privatisation of commercial activities if the infrastructure has to remain in public hands. This benefit can, however, also be realised by more efficient ways, such as improving the corporate governance structure. The other benefits arise from improved network performance, efficiency of regulatory activity and increased competition. The realisation of these results is, of course, not a free lunch. Ownership unbundling reduces economies of scope, creates one-off transaction costs, and may also affect investments in generation by the currently vertically integrated Dutch utility holdings. We conclude that mainly because of the uncertainty about the future role of small-scale generation and the uncertainty about the magnitude of the one-off transaction costs related to the cross-border leases, the net effect on welfare of ownership unbundling is ambiguous.

Dutch Consumers’ Willingness to Pay for Broiler Welfare

ABSTRACT This article analyzes Dutch consumers’ willingness to pay (WTP) for the welfare of broiler chickens and the consequences for nonhuman animal welfare policies. Using data from a discrete-choice experiment and a random parameter logit model, this study showed that consumers particularly value opportunities for outdoor access and the method used for anesthesia before slaughter. The WTP was also positively related to the number of consumers buying the same product, indicating that they experience the public-good dilemma. Moreover, the WTP was higher if consumers knew that animal welfare practices were subject to public or collective supervision. Women, people with more education, those with higher income, and nonreligious people had relatively high WTP values. For 87.5% of the respondents, the WTP exceeded the price difference between a broiler with a higher level of animal welfare and a regular chicken. The findings suggest that the Dutch market for broiler chickens can be improved by raising consumer confidence in the labeling system.

Financeability of Investments and Allocation of Costs: an Assessment of the Incentive Regulation of the Dutch High-Voltage Network

Regulation of network tariffs is generally meant to pursue several public interests, in particular that network users should pay not more than the efficient costs while network operators should be able to finance investments. Between these objectives trade-offs exist depending on the actual characteristics of a network. This paper analyses the impact of incentive regulation on both the ability of the Dutch high-voltage network operator (TenneT TSO) to finance investments and the allocation of costs among shareholders and customers. Based on a simulation of the financial development of the network operator over 2010–2030, we conclude that the regulatory framework enables the operator to finance its investments as shareholders can be given an appropriate return on capital, provided that the operator gradually eliminates the existing inefficiencies in the network. In the mean time, customers necessarily pay more than the level of efficient costs. It appears that the allocation of costs of the current network inefficiencies among shareholders and customers depends on the regulatory choice on the time path the network operator gets to repair these inefficiencies. Eventually, regulatory choices depend on the political debate regarding diverging public interests of investments in networks versus a fair distribution of costs.

The allocative efficiency of the Dutch gas-balancing market

The recently introduced market-based gas-balancing regime in the Netherlands is meant to improve the efficiency of gas balancing in order to enhance the development of the Dutch wholesale market for gas. This paper shows that the efficiency of the new balancing regime could be improved further by making the market simpler with less restrictive rules. By removing the reserve market, the incentive component as well as the obligation on all players to offer assistance gas, the balancing regime would still enable the TSO to realise network stability but with less allocative inefficiencies.

Competition and Interest Rates in the Dutch Mortgage Market: An Econometric Analysis Over 2004-2010

Triggerd by evidence that the mortgage interest margins have risen since 2009, an econometric analysis is conducted to explain the interest rates in the Dutch mortgage market at the bank level over 2004-2010. Controlling for the influence of costs, risks and also for some regulatory measures, we find statistically significant evidence that the degree of competition in the Dutch mortgage market (measured by C3 or HHI) affected the level of the mortgage interest rates. An increase in market concentration equal to the size of its standards deviation over the period of analysis raised the mortgage interest rate by approximately 0.10 to 0.20 percentage points. The impact of costs as well as risks appears to be about twice as large as the impact of market concentration. In addition, we find a statistically significant negative relationship between the degree to which the state-supported banks act as price leaders, either through imposed regulation or at their own discretion, and the mortgage interest rate. The conclusions continue to hold if we use actual mortgage interest rates instead of window mortgage interest rates.

Competition and long-term contracts in the Dutch electricity market

This book fills a gap in the existing literature by dealing with several issues linked to long-term contracts and the efficiency of electricity markets. These include the impact of long-term contracts and vertical integration on effective competition, generation investment in risky markets, and the challenges for competition policy principles.

Will California come to Europe? A Numerical Simulation

We discuss under what conditions California’s electricity crisis may happen in Western European countries, taking The Netherlands as an example. We use a simulation model containing the electricity generation and distribution sector. We simulate exogenous events, such as a sudden shift in demand levels, a sharp rise in world fuel prices and a cutback in foreign supply. We use the model to investigate whether supply remains secured under different regulatory regimes. Our results suggest a trade-off between controlled prices and security of supply. Europe’s electricity supply security is vulnerable if prices are not allowed to reflect scarcity. If prices are unrestricted however, they will reach oligopoly levels.

Energy transition and the electricity market: an exploration of a electrifying relationship

While achieving the ambitious energy transition targets is important to society, it is also costly. To keep these costs as low as possible and, thus, increase the chances of successfully accomplishing the energy transition, upholding the basic principles of the organisation of the electricity market to the greatest possible extent is required. The author discusses these basic principles and the extent to which they must be adjusted because of the energy transition. The topics discussed include the wholesale market pricing, investments in power stations, the way in which the network operators keep the electricity network in balance, the opportunities which suppliers have to increase consumer involvement in the electricity market, citizens’ desire for setting up local energy cooperatives, the increase in the degree to which the electricity markets in different countries are interconnected and the relationship with the European Union’s emissions-trading system.

Competition in Retail Electricity Markets: An Assessment of Ten Year Dutch Experience

This paper examines a decade of retail competition in the Dutch electricity market and discusses market structure, regulation, and market performance. We find a proliferation of product variety, in particular by the introduction of quality-differentiated green-energy products. Product innovation could be a sign of a well-functioning market that caters to customer’s preferences, but it can also indicate a strategic product differentiation to soften price competition. Although slightly downward trending, gross retail margins remain relatively high, especially for green products. Price dispersion across retailers for identical products remains high, as also across products for a single retailer. We do not find evidence of asymmetric pass-through of wholesale costs. Overall, the retail market matured as evidenced by fewer consumer complaints and higher switching rates. A fairly intensive regulation of mature energy retail markets appears to be needed to create benefits for consumers.