Government involvement in liberalised gas markets; a welfare-economic analysis of Dutch gas-depletion policy
This report analyses the welfare effects of two major components of the Dutch gas-depletion policy: the offtake guarantee for small-fields gas and the cap on production from the Groningen field. We conclude that the benefits of offtake guarantee currently may outweigh the costs, but a further development of the gas market would reverse this picture. The cost of the offtake guarantee is that it gives operators reduced incentives to respond optimally to short-term changes in market conditions compared to a competitive market. Regarding the cap on Groningen (42.5 bcm per year), we find that this measure is inefficient when the cap is binding, i.e. restricting the production from the Groningen field. The costs of capping Groningen production follow from shifting returns to the future. The benefits of this measures consist of slightly positive effects on small-fields production and positive benefits for security of supply. Read the background documents: CPB Memorandum 143: "Market failures and government policies in gas markets" CPB Memorandum 144: "NATGAS: a model of the European natural gas market"
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