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Energy policies and risks on energy markets; a cost-benefit analysis

Author

Listed:
  • Jeroen de Joode
  • Douwe Kingma

    ()

  • Mark Lijesen

    ()

Abstract

The key question dealt with in this report is whether and how governments should be involved in taking measures regarding security of energy supply. In order to answer this question, we developed a framework for cost-benefit analysis and applied this framework to a number of policy options. Read also the press release and accompanying document ' Increasing the reliability of electricity production: a cost-benefit analysis '. The options chosen vary from government investments in strategic oil stocks to financial incentives for consumers to reduce their consumption of electricity. The set of options comprises several types of governmental action, including subsidies, regulation and government investments. Moreover, the selection includes measures meant to address risks on all three major energy markets: oil, natural gas, and electricity. The general picture following from the cases studied is that security of supply measures are hardly ever beneficial to welfare: benefits of policy measures do generally not outweigh costs. From an economic point of view, therefore, it would be often wiser to accept consequences of supply disruptions than to pursue security of supply at any cost. This implies that governments should exercise caution in imposing measures regarding security of supply. If serious market failure is detected, careful attention should be paid to the design of the corrective measure. Establishing and maintaining well-functioning markets appears to be an efficient approach in realising a secure supply of energy. That approach would include removal of entry barriers, securing equal access to essential facilities and increasing transparency of markets.

Suggested Citation

  • Jeroen de Joode & Douwe Kingma & Mark Lijesen, 2004. "Energy policies and risks on energy markets; a cost-benefit analysis," CPB Special Publication 51, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:spcial:51
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    File URL: http://www.cpb.nl/sites/default/files/publicaties/download/energy-policies-and-risks-energy-markets-cost-benefit-analysis.pdf
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    References listed on IDEAS

    as
    1. Tishler, Asher, 1993. "Optimal production with uncertain interruptions in the supply of electricity : Estimation of electricity outage costs," European Economic Review, Elsevier, vol. 37(6), pages 1259-1274, August.
    2. Serra, Pablo & Fierro, Gabriel, 1997. "Outage costs in Chilean industry," Energy Economics, Elsevier, pages 417-434.
    3. Pablo Serra & Gabriel Fierro, 1996. "Outage Cost in Chilean Industry," Documentos de Trabajo 10, Centro de Economía Aplicada, Universidad de Chile.
    4. Robert S. Pindyck, 2001. "The Dynamics of Commodity Spot and Futures Markets: A Primer," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-30.
    5. Machiel Mulder & S. Speck, 2003. "Competition on European energy markets: between policy ambitions and practical restrictions," CPB Document 33, CPB Netherlands Bureau for Economic Policy Analysis.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Winzer, Christian, 2012. "Conceptualizing energy security," Energy Policy, Elsevier, vol. 46(C), pages 36-48.
    2. Rob Aalbers & Victoria Shestalova & Sander Onderstal, 2004. "Better safe than sorry? Reliability policy in network industries," CPB Document 73, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Setzer, Ralph & van den Noord, Paul & Wolff, Guntram B., 2011. "Heterogeneity in money holdings across euro area countries: The role of housing," European Journal of Political Economy, Elsevier, pages 764-780.
    4. Machiel Mulder & Gijsbert Zwart, 2006. "Government involvement in liberalised gas markets; a welfare-economic analysis of Dutch gas-depletion policy," CPB Document 110, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Arie ten Cate & Mark Lijesen, 2004. "The Elmar model: output and capacity in imperfectly competitive electricity markets," CPB Memorandum 94, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Mark Lijesen, 2004. "Increasing the reliability of electricity production: a cost-benefit analysis," CPB Document 52, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Ang, B.W. & Choong, W.L. & Ng, T.S., 2015. "Energy security: Definitions, dimensions and indexes," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 1077-1093.
    8. Berndes, Goran & Hansson, Julia, 2007. "Bioenergy expansion in the EU: Cost-effective climate change mitigation, employment creation and reduced dependency on imported fuels," Energy Policy, Elsevier, vol. 35(12), pages 5965-5979, December.

    More about this item

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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