European gas regulation: A change of focus
Aldo Spanjer
Economics Department
November 10th, 2006
Outline
• Drivers of paradigm changes in gas
markets.
• Common policy recommendations
based on the new energy paradigm.
• Regulation theory on hold-up and
policy credibility.
• A change of focus.
Drivers of paradigm changes
- Up to 1970s: Neoclassical focus, immature
market, geopolitical anxieties after oil crises.
- 1980s-1990s: Liberalism, mature market,
excess supply.
- From 2000 on: Investment needs, seller’s
market.
Is current regulation still up to its task of
securing the public service obligations?
Common policy recommendations:
Economics of Institutions; New Institutional
Economics
Level 1
Informal institutions
Values, norms,
attitudes
Level 2
Formal institutions
(International)
treaties/laws
Level 3
Institutional
arrangements
Contracts, guidelines
Level 4
Market
structure/individual's
behavior
Energy policy objectives
First NIE pillar: property rights
Second NIE pillar: transaction
costs, contracts
Neoclassical Economics,
Agency theory
Believes on gas
scarcity, state vs.
market, orientation on
consumer interest.
Gas Directives and
national Gas Acts,
competition policy.
Actual regulation: netcodes, tax rates,
emission ceilings.
Level of unbundling,
price and output
levels, investments.
Hold-up and gas policy credibility
Variable
Gas market
Policy credibility
Investments
Sunk and increasing
Demand
Increasing
Capital depreciation
Low
Technological
development
Low
-+
+
-
Discount factor
Low
Ownership
Predominantly public
Investor’s profits
Emphasis on consumer
-
Continued
Conclusion on hold-up:
1) The hold-up problem is very likely to occur in
gas markets;
Conclusions from the theory:
2) The hold-up problem is not easily solved via
commitment rules;
3) Any solution requires a sufficiently pro-industry
regulator.
A change of focus
Theory: a pro-industry regulator is paramount.
In terms of the NIE figure: level 1, commonly
assumed given.
Solution: before changing levels 2 and 3,
change the regulatory focus at level 1.
Follow-up research
How will changing the regulatory focus away
from its traditional pro-consumer view impact
the provisions emanating from the Gas
Directives?