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Resource Rent Taxation – A New Perspective for the (Swiss) Hydropower Sector

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  • Silvia Banfi

    () (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Massimo Filippini

    () (Center for Energy Policy and Economics CEPE, Department of Management, Technology and Economics, ETH Zurich, Switzerland)

  • Cornelia Luchsinger

    () (BKW FMB Energie AG, Viktoriaplatz 2, 3000 Bern 25, Switzerland)

Abstract

The electricity generation in Switzerland is mainly based on hydropower accounting for 58 percent of the total production. The exploitation of water in the hydropower sector can generate significant economic rents. These rents –the so-called resource rents - are defined by the surplus return above the value of capital, labor, materials and energy used to exploit water resources. States and regulators have different methods of procuring these rents (see, e.g., Watkins (2001)), for instance through a fixed water fee system or a resource rent tax system. The latter is usually employed in the oil extraction industry. For many decades Swiss producers of hydropower have paid to the owners – usually the cantons – a certain fee per kW gross capacity which is fixed in accordance with the federal law at a maximum of about 52 Euro1. With the fixation of this fee on a kW basis, the substantial differences in cost and revenue structures and levels of the hydropower plants are not directly taken into account. The goal of this paper is to propose a new scheme for these hydropower fees, based on the economic concept of the so-called resource rent. Basically, we propose a resource rent tax (RRT) system, which was first developed by Garnaut and Clunies Ross (1975). The basic novelty in this paper is the combination of the RRT system with the econometric estimation of the variable costs in order to overcome the asymmetric information problem and to forecast the RRT per company respectively.

Suggested Citation

  • Silvia Banfi & Massimo Filippini & Cornelia Luchsinger, 2004. "Resource Rent Taxation – A New Perspective for the (Swiss) Hydropower Sector," CEPE Working paper series 04-34, CEPE Center for Energy Policy and Economics, ETH Zurich.
  • Handle: RePEc:cee:wpcepe:04-34
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    File URL: http://www.cepe.ethz.ch/publications/workingPapers/CEPE_WP34.pdf
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    References listed on IDEAS

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    1. Banfi, Silvia & Filippini, Massimo & Mueller, Adrian, 2005. "An estimation of the Swiss hydropower rent," Energy Policy, Elsevier, vol. 33(7), pages 927-937, May.
    2. Mehdi Farsi & Massimo Filippini, 2004. "Regulation and Measuring Cost-Efficiency with Panel Data Models: Application to Electricity Distribution Utilities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 25(1), pages 1-19, August.
    3. Garnaut, Ross & Clunies Ross, Anthony, 1975. "Uncertainty, Risk Aversion and the Taxing of Natural Resource Projects," Economic Journal, Royal Economic Society, vol. 85(338), pages 272-287, June.
    4. Baillie, R.T. & Baltagi, B.H., 1994. "Prediction from the Regression Model with one-way Error Components," Papers 9405, Michigan State - Econometrics and Economic Theory.
    5. Ricardo, David, 1821. "On the Principles of Political Economy and Taxation," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, edition 3, number ricardo1821.
    6. Banfi, Silvia & Filippini, Massimo & Luchsinger, Cornelia, 2002. "Deregulation of the Swiss Electricity Industry: Short-Run Implications for the Hydropower Sector," The Electricity Journal, Elsevier, vol. 15(6), pages 69-77, July.
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    Cited by:

    1. Reinhard Madlener & Stefan Vögtli, 2006. "Diffusion of bioenergy in urban areas: socio-economic analysis of the planned Swiss wood-fired cogeneration plant in Basel," CEPE Working paper series 06-53, CEPE Center for Energy Policy and Economics, ETH Zurich.
    2. Silvia Banfi & Massimo Filippini & Andrea Horehájová, 2007. "Hedonic Price Functions for Zurich and Lugano with Special Focus on Electrosmog," CEPE Working paper series 07-57, CEPE Center for Energy Policy and Economics, ETH Zurich.
    3. Madlener, Reinhard & Koller, Martin, 2007. "Economic and CO2 mitigation impacts of promoting biomass heating systems: An input-output study for Vorarlberg, Austria," Energy Policy, Elsevier, vol. 35(12), pages 6021-6035, December.
    4. Silvia Banfi & Massimo Filippini & Andrea Horehájová, 2007. "Using a Choice Experiment to Estimate the Benefits of a Reduction of Externalities in Urban Areas with Special Focus on Electrosmog," CEPE Working paper series 07-58, CEPE Center for Energy Policy and Economics, ETH Zurich.
    5. Reinhard Madlener & Carlos Henggeler Antunes & Luis C. Dias, 2006. "Multi-Criteria versus Data Envelopment Analysis for Assessing the Performance of Biogas Plants," CEPE Working paper series 06-49, CEPE Center for Energy Policy and Economics, ETH Zurich.
    6. Kumbaroglu, Gürkan & Madlener, Reinhard & Demirel, Mustafa, 2008. "A real options evaluation model for the diffusion prospects of new renewable power generation technologies," Energy Economics, Elsevier, vol. 30(4), pages 1882-1908, July.

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