Motivations for market restructuring: Evidence from U.S. electricity deregulation

The purpose of this paper is to examine whether electricity restructuring was brought about due to the Public Interest Theory (that regulatory changes are undertaken to benefit society) or the Interest Group Theory (that groups hoping to gain from deregulation lobby for regulatory changes). From 1996 to 2002 eighteen states developed restructuring programs targeted at improving efficiency through the use of increased wholesale trading, abolition of ‘cost of service’ regulation, measures to open electricity production to non-utility entities, and the unbundling of transmission and distribution. Results indicate some evidence of the Public Interest Theory and strong evidence of the Interest Group Theory.     

Electricity market deregulation and environmental regulation: Evidence from U.S. nuclear power

Nuclear power in the United States provides substantial electricity supply and thus this study replicates the finding in Davis and Wolfram (2012) that divestiture leads to a statistically significant and economically meaningful increase in nuclear power reactor output. Divestiture is the sale of generating assets from regulated, investor-owned utilities to independent power producers with the profit motive to increase output. The divestiture effect result is robust to specification choice and testing with an extended dataset containing additional years of observations. This study also finds the new result that reactor output increases via an indirect environmental policy mechanism. The environmental regulations considered occurred contemporaneously to the divestitures and thus provides a further robustness check on the divestiture effect result.     

The transformative potential of geothermal heating in the U.S. energy market: A regional study of New York and Pennsylvania

Enhanced Geothermal Systems (EGS) could supply a significant fraction of the low-temperature (<125 °C) thermal energy used in the United States through Geothermal District Heating (GDH). In this study we develop a regional model to evaluate the potential for EGS district heating in the states of New York and Pennsylvania by simulating an EGS district heating network at each population center within the study region and estimating the levelized cost of heat (LCOH) from GDH for each community. LCOHs were then compiled into a supply curve from which several conclusions could be drawn.Our evaluation revealed that EGS district heating has the potential to supply cost-effective energy for space and water heating in several New York and Pennsylvania communities in the near future. To realize wider deployment, modest improvements in EGS technology, escalation of natural gas prices, and/or government incentives will likely be required to enable GDH to compete with other heating alternatives today. EGS reservoir flow rates, drilling costs, system lifetimes, and fluid return temperatures have significant effects on the LCOH of GDH and thus will provide the highest return on R&D investment, while creative implementation strategies can help EGS district heating overcome initial cost barriers that exist today.     

Supply and demand elasticities in the U.S. ethanol fuel market

The market for ethanol has grown from approximately 1.2 billion gallons in 1997 to almost 5 billion gallons in 2006. With the huge increase in ethanol demand in recent years, the growth in derived demand for corn has driven up many food prices. This paper uses monthly data from 1997–2006 to estimate the market supply and demand for ethanol at the national level. The simultaneous determination of the supply and demand curves using two-stage least squares allows for the calculation of supply and demand-side elasticities, which are important results in light of the tremendous growth in this market and recent legislation concerning ethanol.     

Testing substitution between private and public storage in the U.S. oil market: A study on the U.S. Strategic Petroleum Reserve

The U.S. Strategic Petroleum Reserve (SPR) was established in 1975 to mitigate major oil supply disruptions and to deter the use of energy as a geopolitical “weapon.” However, policies towards the utilization of strategic oil stocks have varied under different presidencies and the SPR has often not been used in sufficient quantity or soon enough to avoid the negative economic consequences that can follow oil supply outages. Economic theory suggests that the existence of public stockpiles of commodities will alter inventory management practices of private market participants. This paper models private crude oil storage in the United States and estimates the private storage response to presidential announcements regarding the SPR. We investigate the incidence of different kinds of announcement events including releases and test sales from the SPR, announced changes in fill rates, and changes of presidency and how these events impact private land-based storage in the United States by region (PADD) as well floating storage. We find significant substitution between private and public stocks for crude oil and find that announcement events are associated with observable changes in private inventory levels, with implications for public policy choices and geopolitical strategies.     

Linking the gas and oil markets with the stock market: Investigating the U.S. relationship

Energy markets can represent a strategic advantage when they are supporting each other, and specifically when energy segments are complementary enough to support economic development and growth. In this light, a high and strategic interest relies on the possible interactions between energy market segments as well as their impact on a given country’s financial market. The proposed research focuses on the interaction between the U.S. natural gas and U.S. crude oil markets on one side and their dependencies with the U.S. stock market on the other side. After controlling for structural changes or breaks, we characterize previous dependencies with the multivariate copula methodology. First, we assess the joint link prevailing between the natural gas and crude oil markets. Then, we characterize the joint risk structure prevailing between previous energy markets and the U.S. stock market. Finally, we assess the joint dependence structure between the natural gas, crude oil and stock markets.     

Labor market impacts of U.S. tight oil development: The case of the Bakken

There has been a recent boom in natural gas and oil production in the US due to high energy prices and technological advances in hydraulic fracturing and horizontal drilling. While North Dakota oil production has increased significantly since 2005 with the development of Bakken formation, the impact on the rest of the economy including agriculture, historically the largest industry in North Dakota, has received little attention. We employ a variant of the Corden-Neary resource development model to test the impact of the oil boom in North Dakota caused by technical change on employment and wages in two tradable sectors of the state economy: agriculture and energy, alongside the rest of the state's economy, using a Vector Error Correction (VEC) model marking the very first use of the dynamic vector autoregression (VAR) analysis in this theoretical framework.It was determined that the oil boom, as represented by the number of rigs in the state, led to an increase in employment and wages in energy sector, as expected, but also in the rest of the economy. Oil development activity had no significant impact on agricultural wages. Both energy sector equations, employment and wage, suggest relative independence of these variables from the movements in agriculture and the rest of the economy, and being impacted mostly by the changes in energy sector itself. Seasonality does not play significant role in energy sector employment and wages unlike in agriculture and the rest of the economy.     

Understanding the challenges of industrial carbon capture and storage: an example in a U.S. petrochemical corridor

Industrial carbon capture and storage (CCS) is carbon capture from non-power, stationary emissions sources, typically involving high-purity emissions from a non-combustion exhaust stream. Industrial CCS activities represent a significant opportunity for reducing carbon emissions in concentrated geographic locations and a potential ‘bridge’ to more widespread CCS. This paper provides a summary of the opportunities for industrial CCS and market-based revenue streams, like those associated with enhanced crude oil recovery (EOR). The use of EOR changes the nature of carbon from being a pollutant to a valuable commercial input, which requires a judicious understanding of the technical industrial sequestration process, historic oil and gas operations, and the specific location and types of industrial carbon sources that can facilitate this type of carbon emissions mitigation strategy. We review literature on costs and summarise geospatial data to provide an overview of the potential for an integrated industrial CCS-EOR system in a petrochemical corridor.     

The potential contribution of nuclear energy to U.S. energy requirements

The relative contribution of nuclear energy to the cumulative total primary energy use in the United States in the period 1975 to 2000 has been estimated for several growth scenarios. If the nuclear capacity grows as recently forecast by ERDA, and if the total primary power use grows by 2%/yr, as recently recommended by the FEA, nuclear energy will contribute 10.8% to our cumulative primary energy use.     

Additionality of wind energy investments in the U.S. voluntary green power market

In the United States, electricity consumers are told that they can “buy” electricity from renewable energy projects, versus fossil fuel-fired facilities, through participation in voluntary green power markets. The marketing messages communicate to consumers that they are causing additional renewable energy generation and reducing emissions through their participation and premium payments for a green label. Using a spatial financial model and a database of registered Green-e wind power facilities, the analysis in this paper shows that the voluntary Renewable Energy Certificate (REC) market has a negligible influence on the economic feasibility of these facilities. Nevertheless, voluntary green power marketers at least implicitly claim that buying their products creates additional renewable energy. This study indicates the contrary. Participants in U.S. voluntary green power markets associated with wind power, therefore, appear to be receiving misleading marketing messages regarding the effect of their participation. In the process of completing this analysis, a potentially relevant factor in explaining investor behavior was identified: the potential for the overlap of voluntary REC markets with compliance REC markets that supply utilities need to meet their obligations of Renewable Energy Portfolio Standard (RPS). The majority of state RPS rules allow for regional or even national sourcing of RECs, meaning that projects are generally eligible to provide compliance RECs to utilities not only in their home states, but in several other states.     

The causal nexus between oil prices and equity market in the U.S.: A regime switching model

The aim of this paper is to analyse the causal link between monthly oil futures price changes and a sub-grouping of S&P 500 stock index changes. The causal linkage between oil and stock markets is modelled using a vector autoregressive model with time-varying parameters so as to reflect changes in Granger causality over time. A Markov switching vector autoregressive (MS-VAR) model, in which causal link between the series is stochastic and governed by an unobservable Markov chain, is used for inferring time-varying causality. Although we do not find any lead–lag type Granger causality, the results based on the MS-VAR model clearly show that oil futures price has strong regime prediction power for a sub-grouping of S&P 500 stock index during various sub-periods in the sample, while there is a weak evidence for the regime prediction power of a sub-grouping of S&P 500 stock indexes. The regime-prediction non-causality tests on the MS-VAR model show that both variables are useful for making inference about the regime process and that the evidence on regime-prediction causality is primarily found in the equation describing a sub-grouping of S&P 500 stock market returns. The evidence from the conditional non-causality tests shows that past information on the other series fails to improve the one step ahead prediction for both oil futures and stock returns.     

Market integration and price transmission in the U.S. natural gas market: From the wellhead to end use markets

Examination of the upstream-downstream pricing behavior in U.S. natural gas industry reveals that: (a) natural gas markets are integrated but subject to regime shifts and asymmetric adjustments, suggesting market imperfections. (b) Demand- and supply-side shocks play important roles in determining short-run price movements as evidenced by tests of causality and impulse response functions. (c) The response of end use prices to deviations from equilibrium with wellhead prices vary. Electrical, industrial and city gate prices adjust fast while commercial and residential prices adjust slowly, consistent with the role of administered pricing in later markets. (d) Long-run variations in end use prices are primarily due to their own shocks, while long-run variations in wellhead prices are due to innovations in residential and electrical prices. These findings point to the importance of demand shocks as the primary determinant of natural gas prices in the long-run.     

Future U.S. energy technologies: Cost and oil-import tradeoffs

Many new energy technologies offer the potential of moderating the rising costs of energy while, at the same time, reducing dependence on imported oil. The problem of evaluating which technologies offer the most promise is complex and requires analyzing competition in the marketplace among new and existing technologies over a long span of time. This competition would occur under a variety of future situations affecting energy resources, costs, and technology availability. With the aid of a linear-programming model, we have conducted such an evaluation. The results indicate that the most promising technologies include the light-water reactor, residential and commercial conservation, enhanced oil recovery, shale-oil recovery, industrial cogeneration, the heat pump, and coal liquefaction. This usage yields a decline in oil imports to about half present levels, exactly when depending upon the situation. These results need to be evaluated in light of environmental and other effects not included in the model.     

Comparison of U.K. geothermal and U.S. oil well costs

As part of the development of a complete cost model for low-enthalpy geothermal energy systems, a detailed investigation was carried out on the major cost components involved in drilling wells in sedimentary regions. A drilling cost model, WDCM, was produced as a result of this work. This paper reports the use of the model in explaining differences in the cost of U.S. oil and gas wells and U.K. low-enthalpy geothermal wells, in particular. A comparison with the cost of French low-enthalpy geothermal wells is included.