European gas regulation: a change of focus

Spanjer, Aldo (2006): European gas regulation: a change of focus. Published in: Department of Economics Research Memorandum No. 2006.04 (2006): pp. 1-14.

Abstract

This paper confronts the current European gas regulation with the emerging new energy paradigm. It argues that due to a lack of policy credibility, the hold-up problem is a serious threat that will undermine the workings of the future EU gas market. This paper explores how one could from a theoretical perspective, given the characteristics of the EU gas markets, try to solve the hold-up problem. Two conclusions are 1) that hold-up will not be solved completely and 2) that in order to solve the hold-up problem as much as possible, the underlying assumption of energy policy should be changed. More specifically, the regulatory focus should no longer emphasize predominantly the consumer interests, but should instead more explicitly recognize producer interests. This implies that the current European gas regulation requires a change of focus.

• Item Type: MPRA Paper
• Language: English
• Keywords: gas regulation, hold-up, regulation theory, new energy paradigm
• Subjects: L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L95 - Gas Utilities ; Pipelines ; Water Utilities; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q48 - Government Policy

References

Arentsen, M.J. (2004), Politics and Regulation of Gas in Europe, in: Finon, D. and A. Midtun (eds.) (2004), “Reshaping European Gas and Electricity Markets. Regulation, Markets and Business Strategies”, Elsevier, p. 69-109.

Armstrong, M. and D. Sappington (2005), “Recent Developments in the Theory of Regulation”, in: Armstrong. M. and R. Porter (Eds.) (2005), Handbook of Industrial Organization, Volume 3, North Holland.

Biais, B. and E. Perotti (2002), “Machiavellian Privatization”, American Economic Review, 92(1), March, p. 240-258.

Clingendael International Energy Programme (CIEP) (2005), The European Market for Seasonal Gas Storage, Discussion Paper, January, The Hague.

Clingendael International Energy Programme (CIEP) (2006), The paradigm change in international natural gas markets and the impact on regulation, International Gas Union/ The Clingendael Institute, April, The Hague.

Coase, R. (1937), “The Nature of the Firm”, Economica, 4(16), November, p. 386-405.

Coase, R. (1960), “The Problem of Social Cost”, Journal of Law and Economics, 3(1), October, p. 1-44.

Commission of the European Communities (1988), The Internal Energy Market (Commission Working Document), COM(88) 238 final, May, Brussels.

Correljé, A.F. (2005), Dilemmas in Network Regulation: The Dutch Gas Industry, in: Künneke, R.W., A.F. Correljé, and J.P.M. Groenewegen (eds.), “Institutional Reform, Regulation and Privatization. Process and Outcomes in Infrastructure Industries”, Edward Elgar, p. 115-150.

Crew, M.A. and P.R. Kleindorfer (2006), Regulation, pricing and social welfare, in: Crew, M.A. and D. Parker (eds.), “International Handbook on Economic Regulation”, Edward Elgar, p. 63-81.

Dassler, T. (2006), “Combining theories of regulation – Proposing a framework for analyzing regulatory systems worldwide”, Utilities Policy, 14(1), March. P. 31-43.

Ellis, A., E. Bowitz and K. Roland (2000), ”Structural Change in Europe’s Gas Markets: three scenarios for the development of the European gas market to 2020”, Energy Policy, 28 (5), May, p. 297-309.

Goldberg, V.P. (1976), “Regulation and Administered Contracts”, Bell Journal of Economics, 7(2), Autumn, p. 426-448.

Groenewegen, J.P.M. and R.W. Künneke (2005), Process and Outcomes of the Infrastructure Reform: An Evolutionary Perspective, in: Künneke, R.W., A.F. Correljé, and J.P.M.

Groenewegen (eds.), “Institutional Reform, Regulation and Privatization. Process and Outcomes in Infrastructure Industries”, Edward Elgar, p. 1-36.

Helm, D. (2005), ”The Assessment: the New Energy Paradigm”, Oxford Review of Economic Policy, 21(1), February, p. 1- 18.

International Energy Agency (IEA) (2000), Regulatory Reform: European Gas, IEA, October, Paris.

Levine, P., J. Stern, and F. Trillas (2005), “Utility price regulation and time inconsistency: comparisons with monetary policy”, Oxford Economic Papers, 57(3), p. 447-478.

Lewis, T.R. and D.E.M. Sappington (1990), “Sequential Regulatory Oversight”, Journal of Regulatory Economics, 2(4), December, p. 327-348.

Linde, J.G. van der and J. Stern (2004), The future of gas: Will reality meet expectations?, Paper prepared for the 9th International Energy Forum 2004, 22-24 May, Amsterdam, the Netherlands.

Midttun, A. (2005), Deregulation: Design, Learning and Legitimacy, in: Künneke, R.W., A.F. Correljé, and J.P.M. Groenewegen (eds.), “Institutional Reform, Regulation and Privatization. Process and Outcomes in Infrastructure Industries”, Edward Elgar, p. 39-66.

Newbery, D.M. (1999), Privatisation, Restructuring and Regulation of Network Industries, MIT Press, Cambridge, Massachusetts.

Newbery, D.M. (2001),”Economic reform in Europe: integrating and liberalizing the market for services”, Utilities Policy, 10 (2), June, p. 85-97.

North, D.C. (1981), Structure and change in Economic History, New York: Norton and co.

North, D.C. (1990), Institutions, Institutional Change and Economic Performance, Cambridge: Cambridge University Press.

Salant, D.J. and G.A. Woroch (1992), “Trigger Price Regulation”, Rand Journal of Economics, 23(1), Spring, p. 29-51.

Schmidt, K.M. (2000), “The political economy of mass privatization and the risk of expropriation”, European Economic Review, 44(2), February, p. 393-421.

Sioshansi, F.P. (2005), “Global climate change: Here to stay”, Utilities Policy, 13(3), September.

Spiller, P.T. (1996), “Institutions and Commitment”, Industrial and Corporate Change, 5(2), January, p. 421-453.

Stern, J.P. (2004), Investments and uncertainty in Liberalised Gas Markets: do projects need Article 22 exemptions?, presentation at Symposium on the European Natural Gas Market, AER/CPB/ECN, November 5, The Hague.

Teulings, C.N. and A.L. Bovenberg (2006), Privatization, deregulation and competition: the roles of increasing returns, entrepreneurship and capital-market imperfections, Paper presented at the 62nd IIPF Congress, August 28th, Paphos, Cyprus.

Williamson, O.E. (1971), “The Vertical Integration of Production: Market Failure Considerations”, American Economic Review, 61(2), May, p. 112-123.

Williamson, O.E. (1975), Markets and Hierarchies: Analysis and Antitrust Implications, Free Press, New York.

Williamson, O.E. (1976), “Franchise Bidding for Natural Monopolies – in General and with Respect to CATV”, Bell Journal of Economics, 7(1), Spring, p. 73-104.

Williamson, O.E. (1998), “Transaction Cost Economics: How it works; Where it is headed”, De Economist, 146(1), p. 23-58.