Mark Andor

Optimal Renewable-Energy Subsidies

We derive optimal subsidization of renewable energies in electricity markets. The analysis takes into account that capacity investment must be chosen under uncertainty about demand conditions and capacity availability, and that capacity as well as electricity generation may be sources of externalities. The main result is that generation subsidies should correspond to externalities of electricity generation (e.g., greenhouse gas reductions), and investment subsidies should correspond to externalities of capacity (e.g., learning spillovers). If only capacity externalities exist, then electricity generation should not be subsidized at all. Our results suggest that some of the most popular promotion instruments are likely to cause welfare losses.

Mitigating Hypothetical Bias: Evidence on the Effects of Correctives from a Large Field Study

The overestimation of willingness-to-pay (WTP) in hypothetical responses is a well-known finding in the literature. Various techniques have been proposed to remove or, at least, reduce this bias. Using responses from a panel of about 6,500 German households on their WTP for a variety of power mixes, this article undertakes an analysis that combines two common ex-ante approaches – cheap talk and consequential script – with the ex-post certainty approach to calibrating hypothetical WTP responses. Based on a switching regression model that accounts for the potential endogeneity of respondent certainty, we find that while neither the cheap-talk nor the consequential script corrective bears on the estimates of WTP, there is evidence for a lower WTP among those respondents who classify themselves as definitely certain about their answers.

Combining uncertainty with uncertainty to get certainty? Efficiency analysis for regulation purposes

Abstract Data envelopment analysis (DEA) and stochastic frontier analysis (SFA), as well as combinations thereof, are widely applied in incentive regulation practice, where the assessment of efficiency plays a major role in regulation design and benchmarking. Using a Monte Carlo simulation experiment, this paper compares the performance of six alternative methods commonly applied by regulators. Our results demonstrate that combination approaches, such as taking the maximum or the mean over DEA and SFA efficiency scores, have certain practical merits and might offer a useful alternative to strict reliance on a singular method. In particular, the results highlight that taking the maximum not only minimizes the risk of underestimation, but can also improve the precision of efficiency estimation. Based on our results, we give recommendations for the estimation of individual efficiencies for regulation purposes and beyond.

Germany's Energiewende: A Tale of Increasing Costs and Decreasing Willingness-to-Pay

This paper presents evidence that the accumulating cost of Germany’s ambitious plan to transform its system of energy provision – the so-called Energiewende – is butting up against consumers’ willingness-to-pay (WTP) for it. Following a descriptive presentation that traces the German promotion of renewable energy technologies since 2000, we draw on two stated-preference surveys conducted in 2013 and 2015 that elicit the households’ WTP for green electricity. Two models are estimated, one based on a closed-ended question framed around Germany’s target of 35% renewable energy in electricity provision by 2020, and the other on an open-ended format that captures changes in WTP over time. To deal with the bias that typifies hypothetical responses, the models distinguish respondents according to whether they express definite certainty in their reported WTP. The results from both models reveal a strong contrast between the households’ general acceptance of supporting renewable energy technologies and their own WTP for green electricity.

Climate Change, Population Ageing and Public Spending: Evidence on Individual Preferences

Economic theory, as well as empirical research, suggest that elderly people prefer public spending on policies yielding short-term benefits. This might be bad news for policies aimed at combating climate change: while the unavoidable costs of these policies arise today, the expected benefits occur in the distant future. Drawing on data from over 12,000 households and using the ordered logit and the generalized ordered logit model, we analyze whether attitudes towards climate change and climate policies, as well as public spending preferences, differ with respect to age. Our estimates show that elderly people are less concerned about climate change, but more concerned about other global challenges. Furthermore, they are less likely to support climate-friendly policies, such as the subsidization of renewables, and allocate less public resources to environmental policies. Thus, our results suggest that the ongoing demographic change in industrialized countries may undermine climate policies.

Consequentiality and the Willingness-To-Pay for Renewables: Evidence from Germany

Based on hypothetical responses originating from a large-scale survey among about 7,000 German households, this study investigates the discrepancy in willingness-to-pay (WTP) estimates for green electricity across discrete-choice and open-ended valuation formats, thereby accounting for perceived consequentiality: respondents selfselect into two groups distinguished by their belief in the consequentiality of their answers for policy making. Recognizing that consequentiality status and WTP might be jointly influenced by unobservable factors, we employ a switching regression model that accounts for the potential endogeneity of respondents’ belief in consequences and, hence, biases from sample selectivity. Contrasting with the received literature, we find WTP bids that tend to be higher among those respondents who received the open-ended question, rather than the discrete-choice format. This difference shrinks, however, when focusing on individuals who perceive the survey as politically consequential.

Pseudolikelihood estimation of the stochastic frontier model

ABSTRACT Stochastic frontier analysis is a popular tool to assess firm performance. Almost universally it has been applied using maximum likelihood (ML) estimation. An alternative approach, pseudolikelihood (PL) estimation, which decouples estimation of the error component structure and the production frontier, has been adopted in both the non-parametric and panel data settings. To date, no formal comparison has yet to be conducted comparing these methods in a standard, parametric cross-sectional framework. We produce a comparison of these two competing methods using Monte Carlo simulations. Our results indicate that PL estimation enjoys almost identical performance to ML estimation across a range of scenarios and performance metrics, and for certain metrics, outperforms ML estimation when the distribution of inefficiency is incorrectly specified.

Reform des EU-Emissionshandels: Eine Alternative zu Mindestpreisen für Zertifikate und der Marktstabilitätsreserve

Abstract In Europe’s Emission Trading System (ETS), prices for emission permits have remained low for many years now. This fact gave rise to controversies on whether there is a need for fundamentally reforming the ETS. Potential reform proposals include the introduction of a minimum price for certificates and a market stability reserve (MSR). This is a rule-based mechanism to steering the volume of permits in the market. While preparing the introduction of this instrument, the European Commission hopes to be able to increase and stabilize certificate prices in the medium- and long-term. In this article, we recommend retaining the ETS as it is, rather than supplementing it by introducing a minimum price floor or a market stability reserve. Instead, mistakes from the past should be corrected by a single intervention: the final elimination of those 900 million permits that were taken out of the market in 2014, but would again emerge in the market in 2019 and 2020 (backloading). Zusammenfassung Die seit Jahren niedrigen Zertifikatpreise werden häufig als Begründung dafür angeführt, dass eine Reformierung des EU-Emissionshandels zwingend notwendig wäre. Der von der Europäischen Kommission favorisierte Reformvorschlag ist die Marktstabilitätsreserve. Dies ist ein regelbasierter Mechanismus, über den die Menge an Emissionsberechtigungen gesteuert werden kann. Davon erhofft sich die Kommission die mittel- bis langfristige Stabilisierung des Zertifikatpreises auf einem höheren als dem gegenwärtigen Niveau. Alternative Vorschläge sind die Einführung einer Mindestpreisregelung oder eines Preiskorridors. In diesem Beitrag erörtern wir, warum es empfehlenswert wäre, den Emissionshandel möglichst in seiner Reinform zu belassen, anstatt ihn durch eine Mindestpreisregelung, einen Preiskorridor oder eine Marktstabilitätsreserve zu ergänzen. Fehler aus der Vergangenheit sollten durch einen einmalig erfolgenden Eingriff beseitigt werden: durch die Löschung der 900 Millionen Zertifikate, die im Jahr 2014 aus dem Markt genommen wurden, aber in Zukunft wieder auf den Markt gelangen sollen.

Zahlungsbereitschaft für grünen Strom: Die Kluft zwischen Wunsch und Wirklichkeit

Die Uberschatzung der Zahlungsbereitschaft in rein hypothetischen Entscheidungssituationen ist ein in der Literatur wohlbekanntes Phanomen. Zur Eliminierung dieser Verzerrung wurden verschiedene Methoden vorgeschlagen, unter anderem der sogenannte Cheap-Talk-Ansatz und das Consequential-Skript. Auf Basis einer Erhebung unter mehr als 6.500 deutschen Haushalten untersucht dieser Beitrag die Effektivitat dieser Korrektive. Nach unseren okonometrischen Ergebnissen erweist sich allein Cheap Talk als effektiv, senkt jedoch die Zahlungsbereitschaft fur grunen Strom nur bei jenen Befragten, die sich nicht ganz sicher hinsichtlich ihrer Angaben zur Zahlungsbereitschaft sind. Daruber hinaus zeigen unsere Befragungsergebnisse einen starken Kontrast zwischen der Unterstutzung fur erneuerbare Energien und der Zahlungsbereitschaft fur grunen Strom. So sprechen sich 85,1% der Antwortenden fur die Forderung erneuerbarer Energietechnologien aus, aber nur knapp die Halfte der Antwortenden ist bereit, fur grunen Strom zusatzliche Kosten in Kauf zu nehmen.