Energy Crisis vs. Energy Self-Sufficiency: Optimal Policy with Firms Investment Behavior | Chapter 7 | Current Aspects in Business, Economics and Finance Vol. 4

 After the conflict in Ukraine, choosing the best course of action for ensuring the nation's energy independence from imports can be seen as balancing geopolitics in the larger world. The study demonstrates that nations can achieve energy self-sufficiency if the price of oil is high enough to encourage businesses to switch to alternate energy sources. In order to achieve energy independence in the face of competing markets, scarce resources, and alternative energy sources (oil-saving technology), the research introduces an oil tax (to raise oil prices). The policy instrument outlines the changes the German government will make to gas sources in order to cut back on Russian gas imports. The report also compares various static scenarios in which the regulator acts first (or not) in relation to the firms. There are several possible equilibriums, but only one is socially optimal. The study demonstrates that taxation influences the adoption of various energy-saving technologies, and as a result, the total amount of oil is reduced due to the adoption of alternative sources, which is a requirement for energy self-sufficiency.

Author(s) Details:

Emanuela Giusi Gaeta,
Italian Treasury Department, Ministry of Economic and Finance, Italy.

Please see the link here: https://stm.bookpi.org/CABEF-V4/article/view/8291

Energy Self-sufficiency through Renewables with Endogenous Investment in R&D: The Role of Central Authority | Chapter 5 | Current Aspects in Business, Economics and Finance Vol. 4

 The energy crisis, the increase in oil prices that follows any war, inevitably leads both firms and governments to review their investment strategies in energy sources, in order to achieve self-sufficiency through renewables. This paper analyzes the strong interplay between investment in R&D and firms’ behavior in reducing oil usage in competitive markets, where firms have to pay for the energy saving technology offered by a monopolistic innovator. By assuming that innovation follows a Poisson process, whose arrival rate depends on the number of resources invested in R&D, we show that market instruments are not able to mimic central authority, which provides a higher level of social welfare, than market instruments. This is induced by the endogeneity of the R&D process. The result is similar to Denicolo (1999) and Parry (2003), although under different assumptions. However, higher taxation indeed induces more investment in R&D, as in the cited research studies.

Author(s) Details:

Emanuela Giusi Gaeta,
Italian Treasury Department, Ministry of Economy and Finance, Rome, Italy.

Please see the link here: https://stm.bookpi.org/CABEF-V4/article/view/8289